Chapter 1- Introduction to Economics
Definition
Economics: The study of how society chooses to allocate its scarce
resources in order to satisfy unlimited wants
Microeconomics: Branch of economics that studies
decision-making by a single individual, household, firm,
industry or level of government.
Macroeconomics: Branch of economics that studies
decision-making for the economy as a whole
Chapter 1- Introduction to Economics
Economics
Money, Power, Respect
By
Ms. C. Ibena-Berry
Modified for East High - Period 5!
Chapter 1- Introduction to Economics
Economics
• Outline for the semester
• Materials
• Requirements
• Ticket out
• Song just for you….
• ”Money, Power, Respect
[Link]
v=_K4lZBxGTnM&feature=player_detailpage
Chapter 1- Introduction to Economics
Problem of Scarcity
Scarcity: The condition in which human
wants are forever greater than the available
supply of time, goods, and resources.
3 Economic Questions
What will be Produced?
How will it be Produced?
For whom will it be produced?
Chapter 1- Introduction to Economics
Positive vs. Normative
Positive Economics: An analysis limited to
statements that are verifiable
Normative Economics: An analysis based
on value judgment
Chapter 1- Introduction to Economics
Scarce Economic Resources
Factors of Production (FOP): The resources used to create goods and services
Land: Any natural resource provided by nature.
Labor: The mental and physical capacity of workers to produce goods
and services.
Capital: Any physical man-made good used
to produce other goods.
Entrepreneurship: Vision, skills, and risk-
taking needed to create and run a business.
Chapter 1- Introduction to Economics
Opportunity Cost
Trade-off: Any alternative that could be chosen
Opportunity Cost: The best alternative sacrificed for a
chosen alternative
Chapter 1- Introduction to Economics
Adam Smith: Scottish Economist (1723-1790)
The Invisible Hand Theory
“It is not from the benevolence of the butcher, the
brewer, or the baker, that we can expect our dinner, but
from their regard to their own interest
Chapter 1- Introduction to Economics
Production Possibilities Curve — Marginal Analysis
A
160
Production Possibilities Curve Z
B
140
A curve that shows the maximum
Unattainable
combinations of two outputs that an
point
economy can produce, given 120
available LLC.
100
Guns
U C
Assumptions about the PPC 80
Underutilizatio
• Fixed Resources n
60
• Fully Employed Resources
• Technology Unchanged 40
PPC
20
D
20 40 60 80 100 120
Butter
Chapter 1- Introduction to Economics
Production Possibilities Curve — Law of Increasing Opportunity cost
Guns 160
A
Marginal Analysis
B
An examination of the effects of additions to 140
or subtractions from a current situation.
120
The Law of Increasing Opportunity Costs
The principle that the opportunity cost C
100
increases as production of one output
expands.
80
This is responsible for the “bowed shape” of
the PPC. 60
Reasoning
• not all workers are equally suited to 40
producing one good , compared to PPC
another. 20
• as we shift production levels of butter, D
we gradually tap into the best gun-
20 40 60 80 100 120
making resources
Butter
Chapter 1- Introduction to Economics
Production Possibilities Curve — Movements and Shifts
Guns 160
B
Shifts in the PPC 140
Changes (increases) in the levels of a
country’s LLC will cause the PPC to 120
shift from PPC1 to PPC2
100
A C
Movements along the PPC 80
Changes in the needs and wants
cause a country to choose a different 60
point along an existing PPC
40
20
PPC1 PPC2
20 40 60 80 100 120
Butter
