An Economic Way of Thinking

J.A. SACCO

As in all things, economics is a series of decisions. Who makes these decisions? Consumers? Producers? Are these decisions based on needs/wants? What do producers create? Goods? Services?

Economic Decisions

Greatest concern in making economic decisions are the resources used when making these decisions.

Inputs that are used to produce things that people want.

Economic Resources (Factors of Production)

Natural Resources (Land)◦All the “gifts of nature” that we use to produce goods and services. All the things we call natural resources.◦Land includes minerals, water, air, wild plants, animals,birds, and fish as well as farmland and forests.

Factors of Production

Human Resources Labor◦ The work time and work effort that people devote

to producing goods and services.◦ The quality of labor depends on how skilled

people are—what economists call human capital.

◦Human Experience◦ The knowledge and skill that people obtain from

education, on-the-job training, and work experience.

Factors of Production

Capital Resources• Physical- Tools, instruments, machines,

buildings, and other items that have been produced in the past and that businesses now use to produce goods and services- CAPITAL GOODS

• Financial- Money/assets• Technology/Innovation

Factors of Production

Entrepreneurship◦ The human resource that organizes labor, land,

and capital.◦ Entrepreneurs come up with new ideas about

what and how to produce, make business decisions, and bear the risks that arise from these decisions.

Factors of Production

What’s da problem???

The Dilemma in Economics

Scarcity

A situation in which available resources are unable to produce enough of the things that people desire to satisfy all wants. Scarcity exists because human wants always exceed what can be produced with the limited resources and time available.

A situation in which a resource has more than one use.

Scarcity

The key is to use resources efficiently!!!

10

Limited Resources & Unlimited WantsScarcity

Choices

What? How? For Whom to Produce

Scarcity, Choice, and the Three Economic Questions

Choice- Because of scarcity a person must choose between things. Every choice made means that some other choice had to be sacrificed.

Opportunity Cost- The next-best or highest valued alternative that is given up in order to have the choice that was made. In economics cost is always a forgone opportunity.

World of Trade-Offs- Whenever resources are used for any activity ,the user is trading off the opportunity to use those resources for other things.

Scarcity, Choice and Opportunity Cost

12

Questions◦ What is the opportunity cost of attending this

economics class?◦ What is the opportunity cost of attending a Rolling

Stones concert?◦ What is the opportunity cost of increasing

research for an AIDS vaccine?

Scarcity, Choice, and Opportunity Cost

13

ProductionPossibilities Curve (PPC)

Luxury Cars

Eco

no

my

Car

s

20

140

40

60

80

100

120

20

B

A

40

C

60

D

E

80 100

F

120

GH140

I.

J.