Derry Area School District



Chapter 1: What is Economics?Section 1: Scarcity and the Factors of ProductionVocabulary:need - something like air, food, or shelter that is necessary for survivalwant – an item that we desire but that is not essential to survivaleconomics – the study of how people seek to satisfy their needs and wants by making choicesgoods – physical objects such as clothes or shoesservices – actions or activities that one person performs for anotherscarcity – limited quantities of resources to meet unlimited wantsshortage – a situation in which a good or service is unavailablefactors of production – land, labor, and capital; the three groups of resources that are used to make all goods and servicesland – nature resources that are used to make goods and serviceslabor – the effort that people devote to a task for which they are paidcapital – any human-made resource that is used to create other goods and servicesphysical capital – all human-made goods that are used to produce other goods and services; tools and buildingshuman capital – the skills and knowledge gained by a worker through education and experienceentrepreneur – ambitious leader who combines land, labor, and capital to create and market new goods and servicesSummarize each section of Chapter 1 Section 1Scarcity and ChoicePeople cannot have everything they need and want so they must make choices. All resources are scarce, so people make choices to satisfy their wants and needs based on this.ScarcityScarcity and shortages are not the same thing. Shortages can be either temporary or long-term. Scarcity always exists because a society’s needs and wants are always greater than the supply of resources. Examples of when shortages could occur would be in times of a drought, crops could be affected, and water for household needs could be affected; a flood could cause a shortage of a product if the factory would be shut down do to flood damage; wartime could cause shortages because factories might be utilized to make goods needed for the war instead of the commercial goods it had been making prior to the war; imminent snowstorms could cause temporary shortages on store shelves of items such as bread or milk; etc. LandLand refers to all natural resources used to produce goods and services. Examples include fertile land for farming, coal, water, and forests.LaborLabor would include the medical aid provided by a doctor, or the tightening of a clamp by an assembly line worker. It is also an artist’s creation or repair of appliances. CapitalCapital goods is a synonym for physical capital which includes buildings and tools. Physical capital can save people and companies a great deal of time and money. An economy requires both physical and human capital to produce goods and services.EntrepreneursEntrepreneurs pull land, labor, and capital together to create goods and services. Andrew Carnegie, founder of Carnegie Steel, was an entrepreneur. Other entrepreneurs include people such as J. P. Morgan for finance and U.S. Steel; John D. Rockefeller for oil; Thomas Alva Edison, inventor; Bill Gates for Microsoft; Henry Ford for automobiles; Steve Jobs for Apple; Elon Musk for internet, space, and energy; Cornelius Vanderbilt for railroads; and many more.Scarce ResourcesAll goods and services are scarce because the land, labor, and capital used to create them are scarce. No matter what the good or service is, the supplies of land, labor, and capital used to produce it are scarce because each resource has many alternative uses.Section 2: Opportunity CostVocabulary:trade-off – an alternative that we sacrifice when we make a decisionguns or butter – a phrase that refers to the trade-off that nations face when choosing whether to produce more or less military or consumer goodsopportunity cost – the most desirable alternative given up as the result of a decision thinking at the margin – deciding whether to do or use one traditional unit of some resourcecost/benefit analysis – a decision-making process in which you compare what you will sacrifice and gain by a specific actionmarginal cost – the extra cost of adding a unitmarginal benefit – the extra benefit of adding a unitSummarize each section of Chapter 1 Section 2Trade-OffsAll individuals, businesses, and large groups of people, including governments, make decisions that involve trade-offs. Every decision we make involves some type of trade-off. Business people make decisions about how to use land, labor, and capital resources. Countries must make decisions that involve trade-offs as well – “guns or butter” – weighing their countries needs for a balance between military goods and commercial goods. Students who work or have jobs face trade-offs as to study time versus work or practice.Defining Opportunity CostEvery ordinary decision we make involves an opportunity cost. People can use a Decision-Making Grid to help determine which opportunity cost they are willing to accept for their decision.981075889000Examples: Thinking at the MarginMany decisions involve adding one unit or subtracting one unit. Comparing opportunity costs and benefits at the margin help in decision-making. Decision makers have to look at what they will sacrifice and what they will gain. Once the opportunity cost outweighs the benefits, no more units should be added or subtracted.Section 3: Production Possibilities CurvesVocabulary:production possibilities curve – a graph that shows alternative ways to use an economy’s resourcesproduction possibilities frontier – the line on a production possibilities graph that shows the maximum possible outputefficiency – using resources in such a way as to maximize the production of goods and servicesunderutilization – using fewer resources than an economy is capable of usingcost – to an economist, the alternative that is given up because of a decisionlaw of increasing costs – law that states that as we shift factors of production from one good or service to another, the cost of producing the second item increasesSummarize each section of Chapter 1 Section 3Production PossibilitiesEconomists use graphs to analyze choices and trade-offs people make because graphs help us see how one value relates to another value. To draw a production possibilities curve, an economist must decide which goods or services to examine. The line, or more likely curve, that is drawn represents the production possibilities frontier which shows the combinations of the goods (or services) that are possible using all of the resources available to produce the two products. Each point on the curve reflects a trade-off. Why; because land, labor, and capital are scarce.Examples of Production Possibility Curves Efficiency, Growth, and CostProduction possibilities graphs can show how efficient an economy is; whether an economy has grown or shrunk; ant the opportunity cost of a decision to produce more of one good or service. A production possibilities frontier represents an economy working at its most efficient level of production. Any point under the curve indicates an underutilization of resources. In the real world, the quantity of resources a country has is constantly changing. As the quantity of available resources (land, labor, or capital) changes, the curve will move. An increase of the labor force can result in the ability to produce more goods; or new inventions can allow more goods to be produced at a lower cost. When an wconomy grows, the production possibilities curve will shift to the right. If the production capacity decreases, the curve will shift to the left. Economically speaking, cost is not necessarily money. To an economist, cost always represents opportunity cost. Production possibilities graphs can be used to see the opportunity cost involved in a decision. Increasingly expensive trade-offs can be explained with the law of increasing costs. This law also explains why most production possibilities frontiers are curves.3067050255905Resources and TechnologyA country’s production possibilities depend on both its technological level and the resources it has available. Both human and physical capital reflect the vital ingredient – technology. ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download