Chapter 1 Economics

Chapter 1 Notes

  • Wants: Desires that can be satisfied by consuming a good or service.
    • Wants are unlimited and can change over time.
    • Examples: 


  • Needs:  Things such as food, clothing, and shelter that are necessary for survival.
    • Examples:


  • Scarcity:  A situation that exists when there are not enough resources to meet human wants.
    • Examples: 


  • Economics:  the study of how individuals and societies satisfy their unlimited wans with limited resources.
  • What does Economics involve?
    • Examining how individuals, businesses, governments, and societies choose to use scarce resources to satisfy their wants.
    • Organizing, analyzing, and interpreting data about those economic behaviors.
    • Developing theories and economic laws that explain how the economy works and to predict what might happen in the future.
  • What is the economic way of thinking?
    • Recognizing that human behavior involves choice, and that choices can be analyzed and understood logically.
  • Because wants are unlimited and resources are scarce, choices have to be made about how to best use these resources.  Scarcity affects what goods are made and which services are provided
    • Goods:  physical objects, such as food, clothing, and furniture that can be purchased.
      • Examples:
    • Services: work that one person does for another for payment.
      • Examples
  • Scarcity affects the choices of the consumer and the producer.
    • Consumer:  a person who buys goods or services for personal used
    • Producer:  a person who makes goods or produces services.


  • How does scarcity affect consumers?
    • Consumers must make choices about what to buy and save.


  • How does scarcity affect producers?
    • Producers make choices about what to buy and save.


  • How does scarcity affect governments?
    • Governments must make choices about how to spend public money.


  • Scarcity leads to three economic questions:
    • What will be produced? (and how much)
      • Depends on resources available.
        • If a country does not have a lot of oil then they probably won’t go into gas production.
      • Depends on what consumers want.
        • If consumers want cars with manual and automatic transmissions then producers need to adapt.
      • Dinner example:  What to produce/what to shop for?
    • How will it be produced?
      • Must use scarce resources in the most efficient way to satisfy society’s wants.
      • Depends again on resources.
      • Also depends on labor force.
        • Farming example.
          • Unskilled labor force = more labor-intensive farming.
          • Skilled labor force = more machinery based farming.
      • Dinner example:  How will it be produced? /how will it be cooked?
    • For whom will it be produced?
      • How goods and services are distributed among people in society.
      • How much should people get and how will their share be delivered to them?
      • Determined by equality vs. price
      • Dinner example:  For whom will it be produced?/eating the meal?


  • DISCUSSION:  If a method of production in efficient in one place will it necessarily be efficient in another place?
    • No, because a region’s resources will determine what is or is not efficient.
  • Factors of Production

*Note all factors of production have a limited supply.

  • Land:  All the natural resources found on or under the ground that are used to produce goods and services.
    • Examples:  Water, forests, and wildlife.  Also minerals, gas, and oil found in the earth.
  • Labor:  All the human time, effort, and talent that go into the production of goods and services.
    • Keep in mind this does not just include physical labor.  It includes professional labor as well.
  • Capital:  All the physical resources made and used by people to produces and distribute goods and services are considered capital.
    • Examples:  All a producer’s physical resources such as tools, machinery, factories, offices, warehouses, stores, and road.
  • Entrepreneurship:  The combination of vision, skill, ingenuity, and willingness to take risks that is needed to create and run new businesses.
    • Most entrepreneurs are risk takers who try to anticipate the wants of consumers and then satisfy these wants in new ways.


  • DISCUSSION:  Which of the factors of production is most important?
    • Answer:  None, no matter which one is chosen all four, are important and necessary.

Homework:  Identify 5 Wants you have right now.  Describe how scarcity affects your efforts to meet these wants.

Today’s Goal:  Understanding the economic choice of Opportunity Cost

Learning Targets:

  • I can understand why choice is at the heart of economics and explain how incentives and utility influence people’s economic choices.
  • I can consider the role of trade-offs and opportunity costs in economic choices.
  • I can demonstrate how to do a cost-benefit analysis.

Bell Work:  (Journal) What is the difference between self-interest and selfishness?

Chapter 1 Section 2 Notes

  • When people economize (cut costs) they considered both incentives and utility.
    • Economize:  To make decisions according to what you believe is the best combination of costs and benefits.
    • Incentives:  Methods use to encourage people to take certain actions
      • Examples:  Grades in school, wages, praise
    • Utility:  The benefit or satisfaction gained from the use of a good service.
  • QUESTION:  You have enough money to buy either an MP3 Player this is on sale or some fitness equipment you want.  What incentives and utility would guide your decision?
  • CHOICES Activity
  •  “There is no such thing as a free lunch”
    • Every choice involves costs.
    • These costs can take the form of money, time, or some other thing you value.
  • Trade-0ff:  the alternative people give up when they make choices
    • Remember that for every choice you make you give up something.
  • Opportunity Cost:  is the value of the next-best alternative or something that is given up to get something else that is wanted.
  • What is the difference between trade-off and opportunity cost?
    • A trade-off is a bypassed alternative while and opportunity cost is a value associated with the alternative.
  • Cost-benefit Analysis:  the practices of examining the costs and expected benefits of a choice as an aid to decision making.
  • Example:  Decision making grid – hours spent studying vs. socializing




Opportunity Cost

1 hour of extra study

D in government class

1 hour with friends

2 hours of extra study

C in government class

2 hours with friends

3 hours of extra study

B in government class

3 hours with friends

4 hours of extra study

B+ in government class

4 hours with friends

5 hours of extra study

A- in government class

5 hours with friends

6 hours of extra study

A in government class

6 hours with friends

  • What is opportunity cost of three extra hours of study?
    • Three hours with friends
  • Marginal Cost: the cost of using one more unit of good a good or service.
  • Marginal Benefit:  refers to the benefit or satisfaction received from using one more unit of a good or service.
  • Back to the grid:
    • What is the marginal cost of one more hour of study?
      • The loss of an hour with friends.
    • What is the marginal benefit of that extra hour?
      • Improvement in grades.
  • The analysis of marginal costs and benefits is central to the study of economics.  It helps to explain the decisions consumers, producers, and governments make as they try to meet their unlimited wants with limited resources.


  • Homework:  Create a Cost-Benefit Analysis
    • You have won $1000 in a contest.  Create a three column chart.  In the first column, list how you would spend the money.  In the second column, write a gain from each choice.  In the third column write what you would give up with each choice.

Today’s Goal:  Analyzing Production Possibilities

Learning Targets:

  • I can describe what a production possibilities curve is and how it is constructed.
  • I can explain what economists learn from using production possibilities curves.
  • I can analyze how production possibilities curves sow economic growth.

Bell Work:  (Journal) Discuss the schedule of a typical week in your life.  Do not forget to include extracurricular activities and/or your job.

Chapter 1 Section 3 Notes

  • Economic Models:  simplified representations of complex economic activities, systems, or problems.
  • Production Possibilities Curve (PPC):  a graph used to illustrate the impact of scarcity on an economy by showing the maximum number of goods or services that can be produced using limited resources.
    • PPC represents the border on what it is possible to produce and what it is not possible to produce.
  • The PPC is based on assumptions that that simplify the economic interactions:
    • Resources are fixed
      • There is no way to increase the availability of land, labor, capital, and entrepreneurship.
    • All resources are fully employed
      • There is no waste of any factors of production.
    • Only two things can be produced.
      • This assumption simplifies the situation and suits the graphic format with one variable on each axis.
    • Technology is fixed.
      • There are no technological breakthroughs to improve methods of production.
  • DISCUSSION:  In what ways might the PPC be unrealistic?
  • PPC Example:  Muffins Vs. Bread


Bran Muffins

Loaves of Bread



ß Here you are using all the ingredients to make only bread. Point A






ß Here there is a combination of 7 loaves of bread and 63 muffins. The opportunity cost of making the 7 loaves is 37 muffins (100 – 63)

Point C






ßAt this point, you are making all muffins and no bread.

Point C







  • How does PPC relate to scarcity?
    • The fixed resources highlight the fundamental problem of scarcity-that there are only so many productive resources available. 
    • As a result you cannot make more of one thing without shifting the use of those resources from another.
  • Note: economy actually operates according to the assumptions of the PPC however economists use the simplified model because it spotlights concepts that work in the real world of scarce resources.
  • Efficiency:  the condition in which economic resources are being used to produce the maximum amount of goods and services.
    • If a point falls right on the curve, productive resources are used with efficiency.
  • Underutilization:   the condition in which economic resources are not being used to their full potential and as a result fewer goods and services are being produced that the economy is capable of making.
    • If a point falls to the left of the curve, then productive resources are being underutilized.
  • The law of increasing opportunity costs:  states that as production switches from one product to another, increasingly more resources are needed to increase the production of the second product, causing opportunity costs to rise.
    • This explains why the PPC is curved each additional unit costs more to make then the last.
    • If a point falls to the right of the curve, the level of production is impossible, exceeding productive resource capacity.
  • The PPC can shift because a country’s resources are likely to change over time.
    • When additional resources become available, new production possibilities beyond the original frontier become available and can move the PPC outward.
    • Things that could shift a PPC curve outward would be:  additional natural resources, increased labor resources, new technology that makes use of resources more efficient.


  • Homework:  PPC worksheet.

The Economist’s Toolbox

Today’s Goal:  Discover what tools economists use.

Learning Targets:

  • I can demonstrate how and why economists use economic models and statistics charts, tables, and graphs.
  • I can compare macroeconomics to microeconomics.
  • I can compare positive economics to normative economics.

Bell Work: Turn in yesterday’s assignment then journal: What other subjects depend on data and number as their “language”?  Which of these is the most like economics?

Working with data

  • Since economists cannot interview every person in every nation about economic choices, they rely on statistics to see patterns of behavior.
  • Statistics:  information in numerical form/numerical data.
  • To organize their data they create economic models.
    • They are based on assumptions and are simplified because they focus on a limited number of variables.
    • Models help explain why things are as they are and can sometimes help predict future economic activity.
    • Economists study statistics in a particular way, looking for trends, connections, and relationships.
    • They use charts and tables, and graphs

Microeconomics and Macroeconomics

  • Microeconomics: The study of the behavior of individual players-such as individuals, families, and businesses-in an economy.
    • Units of Study:  Consumer markets, business markets, labor markets.
    • Topics of interest:  markets, prices, costs, profits, competition, government regulation, consumer behavior, business behavior.
  • Macroeconomics:  The study of the behavior of the economy as a whole.  It is concerned with large scale economic activity.
    • Units of Study:  Economic growth, economic stability, and international trade
    • Topics of interest:  Money, banking, finance, government taxing and spending policies, employment and unemployment, inflation.
    • Studies economics as a whole.
    • Concerned with general increases and decreases.

Get moving-left side of the room microeconomics/right side of the room macroeconomics.


Positive Economics and Normative Economics

  • Positive Economics: a way of describing and explaining economics as it is, not as it should be.
    • Involves verifiable facts, not judgments.
    • Uses the scientific method to observe data, hypothesize, test, refine, and continue testing.
    • Can be tested against real-world data and either proved (strongly supported) or disproved (strongly questioned)
  • Normative Economics:  A way of describing and explaining what economic behavior ought to be, not what it actually is.
    • Involves value judgments because it seeks to make recommendations for actions.
    • Goes beyond facts to ask if actions are good.
    • Since the values of people differ, so do the recommendations based on normative economics.