Unit 1: Foundations of

Economics
What comes to your
mind when you hear the
word SCARCE?

(video about scarcity)
What is Economics?

A science that deals with the
allocation, or use, of scarce
resources for the purpose of
fulfilling societys needs and wants.
Addison-Wesley
OBJECTIVES 1.1
EXPLAIN why scarcity and choice are
basic problems of economics
IDENTIFY land, labor, and capital as the
three factors of production, and identify the
two types of capital
EXPLAIN the role of entrepreneurs
EXPLAIN why economists say all
resources are scarce
What is Economics?
So then the big two concepts are
that:
Resources are scarce!
Society has unlimited needs and
wants!
Economics decides the best way of
providing one to the other
VOCABULARY:
Need
Want
Economics
Goods
Services
Scarcity
Definition
A situation in which the amount
of something actually available
would not be sufficient to satisfy
the desire for it, if it were
provided free of charge.
MORE VOCABULARY
Shortage
Factors of Production
Land
Labor
Capital
Physical Capital
Human Capital

Factors of Production
There are 4 factors that must all be
used to produce anything
Natural Resources (also referred to
as land)
Factors of Production
There are 4 factors that must all be
used to produce anything
Labor effort of a person for which
they are paid
Factors of Production
There are 4 factors that must all be
used to produce anything
Capital human-made resources
used to create other goods
Factors of Production
3 Kinds of Capital
Physical Capital Also called
Capital Goods, objects that are
used to produce other goods
Factors of Production
3 Kinds of Capital
Human Capital knowledge or
skills workers get from education
and experience
Factors of Production
There are 4 factors that must all be
used to produce anything
Entrepreneurship person who
takes a risk in combining the other
3 factors to create a new good
VOCABULARY CONTINUED
Entrepreneurs
FACTORS of PRODUCTION
Example of FRENCH FRIES page 6
IN N OUT
Making Economic Decisions
Every decision we make involves
trade-offs alternatives that we
must give up when we make a
choice
Example I could stay up for 3
hours playing Halo, study, or sleep.
PROFILE Gary Becker!
Read p. 7 about Gary
Beckers thoughts about
the marriage market
hmmm Then discuss
with neighbor:
1. Do you agree or
disagree that economics
guides even lifes most
personal decisions???
1.1 QUIZ get a partner!
Number your paper 1 - 6
1. Which of the following are factors of
production?
a. Capital and Land
b. Scarcity and shortages
c. Technology and productivity
d. economics and business decisions
Answer is
a. capital and land
Next question
2. Which of the following is an example of
using physical capital to save time and
money?
a. hiring more workers to do a job?
b. building extra space in a factory to simplify
production
c. switching from oil to coal to make
production cheaper
d. lowering workers wages to increase profits
Answer is
b. building extra space in a factory to
simplify production
next question
3. To what part of an industry does a
workers education contribute?
a. technology
b. physical capital
c. human capital
d. scarce resources
Answer is
c. human capital
next question
4. Which of the following is an
entrepreneur?
a. a person who earns a lot of money as a
singer or dancer
b. a person who creates a game and sells it
to a game manufacturer
c. a person who starts an all-organic cleaning
supplies business that employs others
d. a person who works as a highly paid
computer programmer
Answer is
c. a person who starts an all-organic
cleaning supplies business that employs
others
Next
5. What is the difference between a
shortage and scarcity?
a. A shortage can be temporary or long-term,
but scarcity always exists.
b. A shortage results from rising prices;
scarcity results from falling prices.
c. A shortage is a lack of all goods and
services; scarcity concerns a single item.
d. There is no real difference between a
shortage and scarcity
answer
a. A shortage can be temporary or long-
term, but scarcity always exists!
next.
6. What does an economist mean by the
term LAND?
a. farmland only
b. food crops grown on farmland as well as
the farmland itself
c. goods and services that are produced form
the land
d. all natural resources used to produce
goods and services
answer
d. all natural resources used to produce
goods and services!
FIVE appealing VACATION
Destinations
Hawaii Paris
Dunns River Falls,
Jamaica
Alaska
Ireland
Volunteer: What is your
first choice? What is
your second choice?
Section 1.2 Opportunity Cost
Making Economic Decisions
The most desirable of the options you
pass up is called the Opportunity
Cost
Rank sleep, studying, and playing
video games 1
st
, 2
nd
, and 3
rd
on a list
for what you value the most

Making Economic Decisions
1
st
Place is
what you would
choose to do
2
nd
Place is
your opportunity
cost (you give it
up to do option
1)
Making Economic Decisions
What other option do you have other
than using 3 hours for one task?
You could split your time among
multiple activities!
Thinking at the Margin decision
involving adding one unit and
subtracting one unit, rather than all or
nothing
Making Economic Decisions

Options

Benefit

Opportunity Cost
0 hours studying,
3 hours sleeping
F on Test None
1 hours studying,
2 hours sleeping
C on Test 1 hour of sleep
2 hours studying,
1 hour sleeping
B on Test 2 hours of sleep
3 hours studying B+ on Test 3 hours of sleep
Making Economic Decisions
There is a point at which you are
paying the same increase in cost, but
seeing lower benefits
You must make the decision as to
whether the cost is worth it
This same process is used by
businesses and consumers to make
decisions
QUIZ time .. grab a partner!
Number your paper 1 - 4
1. The economic concept of guns or butter
means that
a. a person can spend extra money either on sports
equipment or food.
b. a company must decide whether to manufacture
guns or butter
c. a government must decide whether to produce
more or less military or consumer goods
d. a government can buy unlimited military and
civilian goods if it is rich enough
answer
c. a government must decide whether to
produce more or less military or consumer
goods trade off . due to scarcity!
next..
2. If a person who wants to buy a
compact disc (CD) has just enough money
to buy one, and chooses CD A instead of
CD B, then CD B is the
a. trade-off
b. opportunity cost
c. decision at the margin
d. opportunity at the margin
answer is
b. opportunity cost
next
3. A decision-making grid is a visual way
of:
a. examining opportunity costs
b. selling goods or services
c. making marginal decisions
d. identifying shortages
answer is ..
a. examining opportunity costs!
next
4. A decision is made at the margin when
each alternative considers
a. a different trade-off than the others
b. where the most costly alternative will be.
c. what the all or nothing alternative will be.
d. cost and benefit ranked in progressive
units.
answer
c. d. cost and benefit ranked in
progressive units
GRAPHS.
WHY do graphs sometimes show
information more clearly than text or
tables?
Section 1.3 Production Possibilities Curves
Production Possibilities
Production Possibilities Graph
shows alternatives to what an
economy can produce
Lets say we can produce 2
things: Guns and Butter
Production Possibilities
Production Possibilities
Production Possibilities Graph
shows alternatives to what an
economy can produce
The outer red line shows the
maximum possible output with any
given combination
This is the Production Possibilities
Frontier (or Curve)
Production Possibilities
To move from
one point to
another, the
economy must
make trade-
offs

Production Possibilities
Any point along the line shows the
economy operating at maximum
efficiency
Any point below the line is
underutilization they are not getting
all that they could
Any point above the line is presently
impossible, until new resources are
available
Production Possibilities
Why does the graph curve instead of
making a straight line?
Law of Increasing Costs as
production increases for one item,
more and more resources are
necessary to increase production of
the second item! The
OPPORTUNITY COST increases
Production Possibilities
Every resource is best suited for
certain types of goods
Farmland and cows make butter
Metals and factories make guns and
many times you hear about butter vs.
guns due to military spending on
weaponry using resources
To convert butter production to guns,
you must sell the cows and build new
factories on the land
quiz time
Number your paper 1 4

1. A production possibilities curve shows
the relationship between the production of:
a. farm goods and factory goods
b. two types of farm goods
c. two types of factory goods
d. any two categories of goods
answer
d. any two categories of goods.
next
2. The line on a production possibilities
curve showing the relative amounts of two
types of goods produced using all
resources is called the
a. production possibilities frontier
b. opportunity cost line
c. utilization of resources
d. maximum possible production line
answer
a. production possibilities frontier
question
3. The law of increasing costs means that as
production shifts from one item to another,

a. the cost of production gets cheaper and cheaper.
b. the cost of producing an item stays the same no
matter how many are produced.
c. more and more resources are necessary to
increase production of the second item
d. the land costs of increasing production rise much
more steeply than do the labor costs
answer is
c. more and more resources are
necessary to increase production of the
second item
and last question
4. The curve usually seen in a production
possibilities frontier can be explained by:
a. growth in the economy
b. underutilization of resources
c. increasing an economys efficiency
d. the law of increasing costs
final answer is
d. the law of increasing costs!
An economy that is efficient is
producing the maximum amount of goods
and services .. now thats efficient!