Chapter 1: What is Economics?

Transcription

1 SCHS SOCIAL STUDIES What you need to know UNIT ONE 1. Explain why scarcity and choice are basic problems of economics 2. Explain the role of entrepreneurs 3. Explain why economists say all resources are scarce Terms you should know Need Want Economics Goods Services Scarcity Shortage Factors of Production Land Labor Capital Physical Capital Human Capital Entrepreneur Trade-off Guns or Butter Opportunity Cost Production Possibility Curve Production Possibility Frontier Efficiency Underutilization Cost Law of Increasing Costs

2 1-1 Summary: Fill in the missing words. People always have to make decisions about how to meet their needs and wants. A is something people must have to survive, like air, food, and shelter. A is something that people would like to have but is not necessary for survival. Economics is the study of how people satisfy their needs and wants. People have to make such choices because of, the limited amounts of resources to meet desires. are objects, like cars and cloths. are actions that people do for others, such as teaching. A occurs when a good or service is unavailable. Shortages occur when people have trouble supplying goods and services at current prices. Shortages may occur because situations like war or drought. They may end quickly or last a long time. Economists call the resource used to make goods and services. There are three types of these. includes natural resources like coal, water, and forests. is work for which people receive pay. is a human-made resources used to produce other goods and services. Objects made by people, like buildings and tools, are called. refers to the knowledge and skills people gain from study and experience. are people who put together land, labor, and capital to create new businesses. The three factors of production-land, labor, and capital are used to create goods and services. FILL IN THE FACTORS OF PRODUCTION CHART. Land: Goods and Services: Labor: Entrepreneur: Capital:

3 Supply in the space provided and explanation an economist might give showing why each statement is true. Statement Explanation 1. People must make choices to satisfy their needs and wants. 2. Scarcity always exists 3. Physical capital is an important factor of production 4. All goods and services are scarce 5. Entrepreneurs are important to the production of goods and services

4 1-2 Summary: Fill in the missing words. When making decisions people face, or alternatives we give up when we choose one course of action over another. Individuals, businesses, and governments all face trade-offs. A person who chooses to spend more time at work has less time to spend at home. A business that uses all its factories to build chairs cannot build tables at the same time. A country that decides to produce more military goods has fewer resources to use for consumer goods. Economists use the term to describe this trade-off. A person who chooses one alternative gives up other alternatives. The most desirable alternative given up is called the. For example, suppose you have to choose between sleeping late or getting up early to study for a test. The opportunity cost of extra study time is less sleep. The opportunity cost of more sleep is less study time. Decisions also involve. This means deciding about adding or subtracting one unit of a resource, such as one hour of sleep. In the example above, the decision was between sleeping late or studying. But you could also choose to sleep an hour late, then wake up to study. To make a decision on the margin, you would compare the opportunity cost and benefit of each extra hour of studying. This grid shows one way to analyze a decision by identifying the opportunity costs and benefits at the margin. FROM YOUR BOOK, FILL IN THE BENEFITS AND OPPORTUNITY COST. Alternatives Benefit Opportunity Cost 1 st hour of extra study time 2 nd hour of extra study time 3 rd hour of extra study time

5 Fill in two supporting facts or details under each main idea by answering each question. Main Idea: Trade-offs are alternatives that people give up when they choose one course of action over another. 1. Who makes trade-offs? 2. Why do decisions involve trade-offs? Main Idea: Opportunity cost is the most desirable alternative given up as the result of a decision. 3. How does opportunity cost vary? 4. Why does opportunity cost vary? Main Idea: Deciding whether to do or use one more or one less unit of some resource is thinking at the margin. 5. What does thinking on the margin help with? 6. What does thinking at the margin help compare? Reviewing Key Terms 7. In what ways are trade-offs and opportunity costs alike? 8. How does an opportunity cost differ from a trade-off? 9. What are guns or butter decisions? 10. How does thinking at the margin change the decision making process?

6 1-3 Summary: Fill in the missing words. Economists use graphs that are called to show alternative ways of using a country s resources. For example, an economist might want to examine the production of shoes and watermelons. A production possibilities curve can show how the number of shoes produced is affected by the number of watermelons grown. As the number of watermelons produced is the number of shoes produced will. This happens because land is, and more land for watermelon farms means less land for shoe factories. Similarly, as more shoes are produced fewer resources are available to grow watermelons. means an economy is using resources in such a way as to maximize the production of goods and services. In the above example, efficiency would mean that the most watermelons and shoes possible are being produced. The line on the curve that shows the maximum possible production is called the. If factory workers and farmers lost their jobs, fewer shoes and watermelons would be produced. In this case the economy would suffer from, or using fewer resources that it is capable of using. A country s resources are always changing. In the future, resources may increase, causing the economy to grow. If more labor becomes available, there will be more workers to produce more goods. Improvements in technology, or know-how, will also help the economy grow. This growth can be shown by a shift to the on the production possibilities frontier.

7 PPC 2 A (0,15) PPC 1 B (8,14) C (14,12) D (18,9) G (6,8) E (20,5) F (21,0) This production possibilities curve shows a made-up country s trade-offs in producing shoes and watermelons. FROM THE GRAPH ABOVE, ANSWER THE FOLLOWING QUESTIONS. 1. At point A, what is happening with production? 2. At point F, what is happening with production? 3. At point G, what is happening with production? What is this phenomenon called? 4. For PPC 2, what is happening with production? Why is this happening?

8 Complete the chart by indicating where on a production possibilities curve the following information is shown. Reading a Production Possibilities Curve 1. Categories or specific goods or services to be computed 2. Range of choices in the combination of goods or services produced 3. Production possibilities frontier 4. An economy working at its most efficient production levels 5. An economy working below its most efficient production levels 6. Future production possibilities frontier if more land, labor, or capital resources become available