Presentation Plus! Economics: Principles and Practices Copyright by The McGraw-Hill Companies, Inc.

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1 Presentation Plus! Economics: Principles and Practices Copyright by The McGraw-Hill Companies, Inc. Developed by FSCreations, Inc., Cincinnati, Ohio Send all inquiries to: GLENCOE DIVISION Glencoe/McGraw-Hill 8787 Orion Place Columbus, Ohio 43240

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3 CHAPTER INTRODUCTION SECTION 1 SECTION 2 SECTION 3 Scarcity and the Science of Economics Basic Economic Concepts Economic Choices and Decision Making CHAPTER SUMMARY CHAPTER ASSESSMENT 3 Click a hyperlink to go to the corresponding section. Press the ESC key at any time to exit the presentation.

4 Economics and You The study of economics will help you become a better decision maker it helps you develop a way of thinking about how to make the best choices for you. Click the Speaker button to listen to Economics and You. 4

5 Chapter Objectives Section 1: Scarcity and the Science of Economics Explain the fundamental economic problem. Examine the three basic economic questions every society must decide. 5 to display the information.

6 Chapter Objectives Section 2: Basic Economic Concepts Explain the relationship among scarcity, value, utility, and wealth. Understand the circular flow of economic activity. 6 to display the information.

7 Chapter Objectives Section 3: Economic Choices and Decision Making Analyze trade-offs and opportunity costs. Explain decision-making strategies. 7 to display the information.

8 Click the mouse button to return to the Contents slide.

9 Study Guide Main Idea Scarcity forces us to make choices. We can t have everything we want, so we are forced to choose what we want most. Reading Strategy Graphic Organizer As you read the section, complete a graphic organizer like the one on page 5 of your textbook by listing and describing the three economic choices every society must make. 9 to display the information. Section 1 begins on page 5 of your textbook.

10 Study Guide (cont.) Key Terms scarcity economics need want factors of production labor entrepreneur production Gross Domestic Product (GDP) land capital financial capital 10 to display the information. Section 1 begins on page 5 of your textbook.

11 Study Guide (cont.) Objectives After studying this section, you will be able to: Explain the fundamental economic problem. Examine the three basic economic questions every society must decide. Applying Economic Concepts Scarcity Why is scarcity the basic economic problem that everyone faces? Click the Speaker button to listen to the Cover Story. 11 to display the information. Section 1 begins on page 5 of your textbook.

12 Introduction According to a Harris poll, a huge percentage of Americans think study of economics is worth your time and effort. A basic understanding of economics can help make sense of the world around us. 12 to display the information.

13 The Fundamental Economic Problem Whether they are rich or poor, most people seem to want more than they already have. The fundamental economic problem facing all societies is that of scarcity. Scarcity is the condition that results from society not having enough resources to produce all the things people would like to have. 13 to display the information.

14 The Fundamental Economic Problem (cont.) Scarcity affects almost every decision we make. Economics is the study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources. Figure to display the information.

15 Needs and Wants Economists often talk about people s needs and wants. A need is a basic requirement for survival and includes food, clothing, and shelter. A want is a way of expressing a need. 15 to display the information.

16 There Is No Such Thing as a Free Lunch Virtually everything we do has a cost even when it seems as if we are getting something for free. Unfortunately, most things in life are not free because someone has to pay for the production in the first place. Economic educators use the term TINSTAAFL to describe this concept. In short, this term means that There Is No Such Thing As A Free Lunch. 16 to display the information.

17 Three Basic Questions Because we live in a world of relatively scarce resources, we have to make wise economic choices. In so doing, we make decisions about the ways our limited resources will be used. Figure to display the information.

18 WHAT to Produce The first question is that of WHAT to produce. A society cannot have everything its people want, so it must decide WHAT to produce. 18 to display the information.

19 HOW to Produce A second question is that of HOW to produce. Should factory owners use mass production methods that require a lot of equipment and few workers, or should they use less equipment and more workers? 19 to display the information.

20 FOR WHOM to Produce The third question deals with FOR WHOM to produce. After a society decides WHAT and HOW to produce, the things produced must be allocated to someone. These questions concerning WHAT, HOW, and FOR WHOM to produce are not easy for any society to answer. 20 to display the information.

21 The Factors of Production The reason people cannot satisfy all their wants and needs is the scarcity of productive resources. The factors of production, or resources required to produce the things we would like to have, are land, capital, labor, and entrepreneurs. 21 to display the information.

22 The Factors of Production (cont.) Figure 1.2 All four factors of production are required if goods and services are to be produced. 22 to display the information.

23 Land In economics, land refers to the gifts of nature, or natural resources not created by humans. Economists tend to think of land as being fixed, or in limited supply. Because the supply of a productive factor like land is relatively fixed, the problem of scarcity is likely to become worse as population grows in the future. 23 to display the information.

24 Capital Another factor of production is capital the tools, equipment, machinery, and factories used in the production of goods and services. Such items also are called capital goods to distinguish them from financial capital, the money used to buy the tools and equipment used in production. Capital is unique in that it is the result of production. 24 to display the information.

25 Labor A third factor of production is labor people with all their efforts, abilities, and skills. This category includes all people except for a unique group of individuals called entrepreneurs. Unlike land, labor is a resource that may vary in size over time. 25 to display the information.

26 Entrepreneurs Some people are special because they are the innovators responsible for much of the change in our economy. Such an individual is an entrepreneur, a risk-taker in search of profits who does something new with existing resources. They provide the initiative that combines the resources of land, labor, and capital into new products. 26 to display the information.

27 Production When all factors of production are present, production, or the process of creating goods and services, can take place. 27

28 The Scope of Economics Economics is the study of human efforts to satisfy what appear to be unlimited and competing wants through the careful use of relatively scarce resources. As such, it is a social science because it deals with the behavior of people as they deal with this basic issue. There are four key elements to this study: description, analysis, explanation, and prediction. 28 to display the information.

29 Description Economics deals with the description of economic activity. The Gross Domestic Product (GDP) is the most comprehensive measure of a country s total output and is a key measure of the nation s economic health. Description is important because we need to know what the world around us looks like but it leaves many important why and how questions unanswered. 29 to display the information.

30 Analysis In order to answer such questions, economics must focus on the analysis of economic activity as well. The importance of analysis is that it helps us to discover why things work and how things happen. This, in turn, will help us deal with problems that we would like to solve. 30 to display the information.

31 Explanation Economics is also concerned with the explanation of economic activity. After economists understand why and how things work, it is useful and even necessary to communicate this knowledge to others. If we all have a common understanding of the way our economy works, some economic problems will be much easier to address or even fix in the future. 31 to display the information.

32 Prediction Finally, economics is concerned with prediction. The study of economics can help to make the best decision in many situations. Because economics deals with the study of what is or what tends to be, it can help predict what may happen in the future, as well as the likely consequences of different courses of action. 32 to display the information.

33 Section Assessment Main Idea Using your notes from the graphic organizer activity on page 5, explain why a society must face the choices about WHAT, HOW, and FOR WHOM to produce. Choices must be made as long as wants are greater than the resources available. 33 to display the answer.

34 Section Assessment (cont.) Describe the fundamental economic problem. Scarcity, the condition that results from society not having enough resources to produce all the things people want, is the fundamental economic problem. 34 to display the answer.

35 Section Assessment (cont.) List the three basic economic questions every society must answer. Every society must ask WHAT to produce, HOW to produce, and FOR WHOM to produce. 35 to display the answer.

36 Section Assessment (cont.) Describe the factors of production. The factors of production are land, capital, labor, and entrepreneurs. 36 to display the answer.

37 Section Assessment (cont.) List the four key elements of economics. The four key elements of economics are description, analysis, explanation, and prediction. 37 to display the answer.

38 Section Assessment (cont.) Scarcity How does scarcity affect your life? Provide several examples of items you had to do without because of limited resources. Explain how you adjusted to this situation. For example, were you able to substitute other items for those you could not have? 38

39 Section Assessment (cont.) Synthesizing Information Give an example of a supposedly free item that you see every day. Explain why the item is not really free by stating who or what actually pays for it. 39

40 Section Close How might the element of prediction in economics be important in your lives? 40

41 Click the mouse button to return to the Contents slide.

42 Study Guide Main Idea An economic product is a good or service that is useful, relatively scarce, and exchangeable. Reading Strategy Graphic Organizer As you read the section, describe three different transactions that could take place in the product market. Use a web like the one on page 12 of your textbook to help you organize your answer. 42 to display the information. Section 2 begins on page 12 of your textbook.

43 Study Guide (cont.) Key Terms economic product good consumer good capital good service value paradox of value utility wealth market factor market product market economic growth productivity division of labor specialization human capital economic interdependence 43 to display the information. Section 2 begins on page 12 of your textbook.

44 Study Guide (cont.) Objectives After studying this section, you will be able to: Explain the relationship among scarcity, value, utility, and wealth. Understand the circular flow of economic activity. Applying Economic Concepts Specialization How does specialization increase production? Click the Speaker button to listen to the Cover Story. 44 to display the information. Section 2 begins on page 12 of your textbook.

45 Introduction Economics, like any other social science, has its own vocabulary. To understand economics, a review of some key terms is necessary. Fortunately, most economic terms are widely used, and many will already be familiar to you. 45 to display the information.

46 Goods, Services, and Consumers Economics is concerned with economic products goods and services that are useful, relatively scarce, and transferable to others. Because of these characteristics, economic products command a price. 46 to display the information.

47 Goods The first type of economic product is a good an item that is economically useful or satisfies an economic want. A consumer good is intended for final use by individuals. When manufactured goods are used to produce other goods and services, they are called capital goods. Any good that lasts three years or more when used on a regular basis is called a durable good. A nondurable good is an item that lasts for less than three years when used on a regular basis. 47 to display the information.

48 Services The other type of economic product is a service, or work that is performed for someone. The difference between a good and a service is that a service is intangible, or something that cannot be touched. 48 to display the information.

49 Consumers The consumer is a person who uses goods and services to satisfy wants and needs. As consumers, people indulge in consumption, the process of using up goods and services in order to satisfy wants and needs. 49 to display the information.

50 Value, Utility, and Wealth In economics, value refers to a worth that can be expressed in dollars and cents. Why, however, does something have value, and why are some things worth more than others? 50 to display the information.

51 Paradox of Value At first, early economists were puzzled by a contradiction between necessities and value called the paradox of value. The paradox of value is the situation where some necessities, such as water, have little monetary value, whereas some nonnecessities, such as diamonds, have a much higher value. Economists knew that scarcity is required for value. The problem was that scarcity by itself is not enough to create value. 51 to display the information.

52 Utility It turned out that for something to have value, it must also have utility, or the capacity to be useful and provide satisfaction. The utility of a good or service may vary from one person to the next. A good or service does not have to have utility for everyone, only utility for some. For something to have value it must be scarce and have utility. This is the solution to the paradox of value. 52 to display the information.

53 Wealth Wealth, in an economic sense, is the accumulation of those products that are tangible, scarce, useful, and transferable from one person to another. While goods are counted as wealth, services are not because they are intangible. However, this does not mean that services are not useful as they may be the source of wealth. 53 to display the information.

54 The Circular Flow of Economic Activity The wealth that an economy generates is made possible by the circular flow of economic activity. The key feature of this circular flow is the market, a location or other mechanism that allows buyers and sellers to exchange a certain economic product. Markets may be local, regional, national, or global. More recently, markets have evolved in cyberspace. 54 to display the information.

55 Factor Markets How does this circular flow operate? Individuals earn their incomes in factor markets, the markets where productive resources are bought and sold. While the concept of a factor market is a simplified version of the real world, nevertheless, it is realistic. Figure to display the information.

56 Product Markets After individuals receive their income from the resources they sell, they spend it in product markets. These are markets where producers sell their goods Figure 1.3 and services to consumers. 56 to display the information.

57 Product Markets (cont.) Businesses then use this money to produce more goods and services. Markets serve as the main links between individuals and businesses. Money provides payments for goods, services, and the factors of production. Figure to display the information.

58 Productivity and Economic Growth Economic growth occurs when a nation s total output of goods and services increases over time. This means that the circular flow becomes larger, with more factors of production, goods, and services flowing in one direction, and more payments flowing in the opposite direction. A number of factors are responsible for economic growth, but productivity is the most important. 58 to display the information.

59 Productivity Everyone benefits when scarce resources are used efficiently. This is described by the term productivity, which is a measure of the amount of output produced by a given amount of inputs in a specific period of time. Productivity goes up whenever more output can be produced with the same amount of inputs in the same amount of time. Productivity is often discussed in terms of labor, but it applies to all factors of production. 59 to display the information.

60 Division of Labor and Specialization Division of labor and specialization can improve productivity. Division of labor takes place when work is arranged so that individual workers do fewer tasks than before. Specialization takes place when factors of production perform tasks that they can do relatively more efficiently than others. In regional specialization, different regions of the country often specialize in the things they can produce best. 60 to display the information.

61 Investing in Human Capital One of the main contributions to productivity comes from investments in human capital, the sum of the skills, abilities, health, and motivation of people. Businesses can invest in training and other programs that improve the skill and motivation of their workers. Individuals can invest in their own education by completing high school, going to technical school, or going to college. 61 to display the information.

62 Investing in Human Capital (cont.) Investments in education can have substantial payoffs. Figure to display the information.

63 Investing in the Future Businesses, government, and other organizations face many of the same choices that individuals do. Investments in human capital and physical capital can eventually increase production and promote economic growth. Faster economic growth, in turn, increases the amount of goods and services available to us. 63 to display the information.

64 Economic Interdependence The American economy has a remarkable degree of economic interdependence. This means that we rely on others, and others rely on us, to provide the goods and services that we consume. Events in one part of the country or the world often have a dramatic impact elsewhere. We need to understand how all the parts fit together, which is one reason why we study economics. 64 to display the information.

65 Section Assessment Main Idea Using your notes from the graphic organizer activity on page 12, explain the different transactions that take place in the product market. The buying and selling of goods and services, and using money from sales to produce more goods takes place in the product market. 65 to display the answer.

66 Section Assessment (cont.) Discuss the relationship among scarcity, value, utility, and wealth. Answers will vary. 66 to display the answer.

67 Section Assessment (cont.) Describe the circular flow of economic activity. 67 to display the answer.

68 Section Assessment (cont.) Explain why productivity is important to economic growth. When productivity goes up, more output is produced with the same amount of inputs in the same amount of time. 68 to display the answer.

69 Section Assessment (cont.) Making Comparisons What is the difference between a durable good and a nondurable good? A durable good lasts three or more years when used on a regular basis. A nondurable good lasts for less than three years. 69 to display the answer.

70 Section Assessment (cont.) Drawing Conclusions In what way do businesses and households both supply and demand in the circular flow model? Businesses supply goods while demanding resources; households supply labor and income while demanding goods. 70 to display the answer.

71 Section Close Discuss ways in which your community, state, or region specializes in the goods and services it provides. Why does it do this? 71

72 Click the mouse button to return to the Contents slide.

73 Study Guide Main Idea Trade-offs are present whenever choices are made. Reading Strategy Graphic Organizer As you read this section, complete a graphic organizer similar to the one on page 19 of your textbook by explaining what you need to know to become a good decision maker. 73 to display the information. Section 3 begins on page 19 of your textbook.

74 Study Guide (cont.) Key Terms trade-off opportunity cost production possibilities frontier cost-benefit analysis free enterprise economy standard of living 74 to display the information. Section 3 begins on page 19 of your textbook.

75 Study Guide (cont.) Objectives After studying this section, you will be able to: Analyze trade-offs and opportunity costs. Explain decision-making strategies. Applying Economic Concepts Opportunity Costs How are your decisions measured in terms of opportunity costs? Click the Speaker button to listen to the Cover Story. 75 to display the information. Section 3 begins on page 19 of your textbook.

76 Introduction The process of making a choice is not always easy. Because resources are scarce, consumers need to make wise choices. To become a good decision maker, you need to know how to identify the problem and then analyze your alternatives. Finally, you have to make your choice in a way that carefully considers the costs and benefits of each possibility. 76 to display the information.

77 Trade-Offs and Opportunity Cost There are alternatives and costs to everything we do. In a world where there is no such thing as a free lunch, it pays to examine these concepts closely. 77 to display the information.

78 Trade-Offs People face trade-offs, or alternative choices, whenever they make an economic decision. To help make the decision, constructing a grid is one way to approach the problem. Figure to display the information.

79 Trade-Offs (cont.) Using a decision-making grid forces you to consider a number of relevant alternatives. requires you to identify the criteria used to evaluate the alternatives. forces you to evaluate each alternative based on the criteria you selected. 79 to display the information.

80 Opportunity Cost To an economist cost often means more than the price tag placed on a good or service. Instead, economists think broadly in terms of opportunity cost the cost of the next best alternative use of money, time, or resources when one choice is made rather than another. Even time has an opportunity cost, although you cannot always put a monetary value on it. 80 to display the information.

81 Production Possibilities A popular model economists use to illustrate the concept of opportunity cost is the production possibilities frontier. This is a diagram representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed. A classic example is a mythical country called Alpha which produces two goods guns and butter. 81 to display the information.

82 Identifying Possible Alternatives Even though Alpha only produces two goods, the country has a number of alternatives available to it. This is why the figure is called a production possibilities frontier. Figure 1.6 The Production Possibilities Frontier 82 to display the information.

83 Identifying Possible Alternatives (cont.) Eventually though, Alpha will have to settle on a single combination because its resources are limited. Figure 1.6 The Production Possibilities Frontier 83

84 Fully Employed Resources All points on the curve represent maximum combinations of output possible if all resources are fully employed. As long as all resources are fully employed, however, there are no extra resources to produce extra quantities of guns or butter. Figure 1.6 The Production Possibilities Frontier 84 to display the information.

85 Fully Employed Resources (cont.) The figure is called a production possibilities frontier to indicate the maximum combinations of goods and/or services that can be produced. Figure 1.6 The Production Possibilities Frontier 85

86 Opportunity Cost Opportunity cost is a general concept that is expressed in terms of trade-offs, or in terms of things given up to get something else. Opportunity cost is not always measured in terms of dollars and cents. Figure 1.6 The Production Possibilities Frontier 86 to display the information.

87 The Cost of Idle Resources If some resources were not fully employed, then it would be impossible for Alpha to reach its potential. If Alpha was operating at point E, opportunity cost of the unemployed resources would be the 100 units of lost butter production. Figure 1.6 The Production Possibilities Frontier 87 to display the information.

88 The Cost of Idle Resources (cont.) Production at point E could be the result of other idle resources, such as factories or land that are available but are not being used. As long as some resources are idle, the country cannot produce on its frontier. Figure 1.6 The Production Possibilities Frontier 88 to display the information.

89 Economic Growth The production possibilities frontier represents potential output at a given point in time. Eventually, however, population may grow, the capital stock may grow, and productivity may increase. Figure 1.6 The Production Possibilities Frontier 89 to display the information.

90 Economic Growth (cont.) If this happens, then Alpha will be able to produce more in the future than it can today. Economic growth causes the production possibilities frontier to move outward. Figure 1.6 The Production Possibilities Frontier 90 to display the information.

91 Thinking Like an Economist Economists study how people satisfy seemingly unlimited and competing wants with the careful use of scarce resources. They are also concerned with strategies that will help us make the best choices. 91 to display the information.

92 Build Simple Models One of the most important strategies of economists is the economic model. A model is a simplified theory or a simplified picture of what something is like or how something works. Simple models can often be constructed that reduce complex situations to their most basic elements. It is important to remember that models are based on assumptions, or things that we take for granted as true. 92 to display the information.

93 Build Simple Models (cont.) The quality of a model is no better than the assumptions that it is based on. Economists use models to better understand the past or present and to predict the future. If an economic model results in a prediction that turns out to be right, the model can be used again. If the prediction is wrong, the model might be changed to make better predictions the next time. 93 to display the information.

94 Employ Cost-Benefit Analysis Most economic decisions can be made by using cost-benefit analysis, a way of thinking about a problem that compares the costs of an action to the benefits received. Businesses choose to invest in projects which give the highest return per dollar spent. State and local governments also use costbenefit analysis to evaluate the effectiveness of public programs. 94 to display the information.

95 Take Small, Incremental Steps Finally, and whenever possible, it also helps to make decisions by taking small, incremental steps toward the final goal. This is especially valuable whenever we are unsure of the exact, or total, cost involved. If the cost turns out to be larger than we anticipated, then the resulting decision can be reversed, without too much being lost. Few decisions are all-or-nothing decisions sometimes it helps to do a little bit at a time. 95 to display the information.

96 The Road Ahead Economics includes the study of how things are made, bought, sold, and used. It provides insight as to how the economy works on a daily basis. It also provides a more detailed understanding of a free enterprise economy. This is one in which consumers and privately owned businesses, rather than the government, make the majority of the WHAT, HOW, and FOR WHOM decisions. 96 to display the information.

97 Topics and Issues The study of economics will provide a working knowledge of property rights, competition, supply and demand, the price system, and the economic incentives that make the American economy function. Along the way, topics such as unemployment, the business cycle, inflation, productivity, and economic growth will be covered. 97 to display the information.

98 Topics and Issues (cont.) The role of business, labor, and government in the American economy also will be examined, along with the relationship of the United States economy to the international community. All of these have a bearing on our standard of living the quality of life based on the possession of the necessities and luxuries that make life easier. 98 to display the information.

99 Economics for Citizenship The study of economics helps us to become better decision makers both in our personal lives and in the voting booths. The study of economics will not provide you with clear-cut answers to all questions, of course, but it will give you a better understanding of the issues involved. 99 to display the information.

100 Making the Rational Choice Economists study how decisions are made. Every time a choice is made something is given up. Rational choice is taking the things with greater value and giving up those with lesser value. Society is dynamic and things are always changing. In practice, the world of economics is complex and the road ahead is bumpy. 100 to display the information.

101 Section Assessment Main Idea Using your notes from the graphic organizer activity on page 19, explain what people try to achieve when they make decisions or trade-offs. When making economic decisions, people try to get the most value for their investment, whether it be time, money, or something else. 101 to display the answer.

102 Section Assessment (cont.) Describe the relationship between trade-offs and opportunity costs. All economic decisions involve tradeoffs. The opportunity cost of a choice is the cost of the next best use of money, time, or resources. 102 to display the answer.

103 Section Assessment (cont.) List the decision-making strategies that economists use. Economists use the circular flow diagram, production possibilities frontier, and cost-benefit analysis. 103 to display the answer.

104 Section Assessment (cont.) Explain why the study of economics is important to the American free enterprise system. Economic issues are an important part of many political campaigns. An understanding of the issues will help a citizen decide how to vote in an election. 104 to display the answer.

105 Section Assessment (cont.) Opportunity Costs Identify several possible uses of your time that will be available to you after school today. What will you actually do, and what will be the opportunity cost of your decision? Explain how your decision will or will not affect your friends and members of your family. 105

106 Section Assessment (cont.) Making Generalizations Study the decision-making grid on page 20 of your textbook. Explain the advantages of using such a grid to evaluate alternatives. Such a grid helps organize and explain the various choices when decision making. 106 to display the answer.

107 Section Close How might the production possibilities frontier change if new technology were applied to the production of guns but not to the production of butter? 107

108 Click the mouse button to return to the Contents slide.

109 Section 1: Scarcity and the Science of Economics The basic economic problem of scarcity is due to the combination of people s seemingly unlimited wants and relatively scarce resources. In a world of scarce resources, There Is No Such Thing As A Free Lunch (TINSTAAFL). Because of scarcity, society has to decide WHAT, HOW, and FOR WHOM to produce. Land, capital, labor, and entrepreneurs are the four factors of production required to produce the things that people use. 109 to display the information.

110 Section 1: Scarcity and the Science of Economics (cont.) Entrepreneurs are risk-taking individuals who go into business in order to make a profit; they organize the other factors of production. The scope of economics deals with description, analysis, explanation, and prediction. 110 to display the information.

111 Section 2: Basic Economic Concepts Consumers use goods and services to satisfy their wants and needs. Something has value when it has utility and is relatively scarce. Wealth consists of products that are scarce, useful, and transferable to others, but wealth does not include services, which are intangible. Markets link individuals and businesses in the circular flow of economic activity; the factors of production are traded in factor markets; goods and services are traded in the product markets. 111 to display the information.

112 Section 2: Basic Economic Concepts (cont.) Productivity and investments in human capital help economic growth; investments in human capital are among the most profitable of all investments. Increases in specialization and division of labor cause more economic interdependence. 112 to display the information.

113 Section 3: Economic Choices and Decision Making The opportunity cost of doing something is the next best alternative, or trade-off, that you give up. A decision-making grid can be used to help evaluate alternatives. A production possibilities frontier shows the various possible combinations of output that can be produced when all resources are fully employed; production inside the frontier occurs when some resources are idle or are not being used to their maximum capability. 113 to display the information.

114 Section 3: Economic Choices and Decision Making (cont.) When economic growth takes place, the production possibilities frontier shifts outward, showing that more products are produced than before. The economic way of thinking involves simplification with model building, cost-benefit analysis to evaluate alternatives, and incremental decision making. The study of economics will make you a better decision maker and will help you to understand the world around you; however, the study of economics will not tell you which decisions to make. 114 to display the information.

115 Section 3: Economic Choices and Decision Making (cont.) The study of economics helps people understand how a free enterprise economy makes the WHAT, HOW, and FOR WHOM decisions. 115

116 Click the mouse button to return to the Contents slide.

117 Identifying Key Terms Choose the letter of the term that best completes the following sentences. B Economic products designed to satisfy people s wants and needs are called. J I The of a CD player can be expressed in dollars and cents. Haircuts, repairs to home appliances, and entertainment are examples of. A. capital goods F. human capital B. consumer goods G. opportunity cost C. consumers H. scarcity D. factors of production I. services E. utility J. value 117 to display the answer. The Chapter Assessment is on pages

118 Identifying Key Terms (cont.) Choose the letter of the term that best completes the following sentences. H G F arises because society does not have enough resources to produce all the things people would like to have. The of going to a football game instead of working would include the money not earned at your job. is the sum of the skills, abilities, health, and motivation of people. A. capital goods F. human capital B. consumer goods G. opportunity cost C. consumers H. scarcity D. factors of production I. services E. utility J. value 118 to display the answer.

119 Identifying Key Terms (cont.) Choose the letter of the term that best completes the following sentences. E is another name for the capacity of a product to be useful. A The only factors of production that are themselves the result of earlier production are. D Land, capital, labor, and entrepreneurs are. C People who use goods and services to satisfy their wants and needs are called. A. capital goods F. human capital B. consumer goods G. opportunity cost C. consumers H. scarcity D. factors of production I. services E. utility J. value 119 to display the answer.

120 Reviewing the Facts Identify the cause of scarcity. having only limited resources to meet seemingly unlimited wants 120 to display the answer.

121 Reviewing the Facts (cont.) List the three basic economic questions that every society must face. WHAT to produce? HOW to produce? FOR WHOM to produce? 121 to display the answer.

122 Reviewing the Facts (cont.) Describe the factors of production required to deliver a service like education. land; land itself and natural resources; capital: school building, computers, financial capital; labor: teachers, other workers, publishers; entrepreneurs: people who devise new products and methods of delivery of educational material. 122 to display the answer.

123 Reviewing the Facts (cont.) Explain why economics is considered a social science. It deals with people s behavior as they cope with scarcity. 123 to display the answer.

124 Reviewing the Facts (cont.) Describe the relationship between goods, services, and consumers. Consumers use goods and services to satisfy their wants and needs. 124 to display the answer.

125 Reviewing the Facts (cont.) Explain why services are excluded from the measure of wealth. because they are intangible and it is difficult to measure their value accurately 125 to display the answer.

126 Reviewing the Facts (cont.) Distinguish between product markets and factor markets. Product markets are producers offering goods and services for sale. Factor markets are productive resources being bought and sold. 126 to display the answer.

127 Reviewing the Facts (cont.) Explain why economists argue that productivity is important. Productivity is the efficient use of productive resources. The more efficiently productive resources are used, the greater the number of goods and services that are produced. 127 to display the answer.

128 Reviewing the Facts (cont.) Describe the nature of an opportunity cost. the cost of the next best alternative use of money, time, or resources when one choice is made rather than another 128 to display the answer.

129 Reviewing the Facts (cont.) Identify the economic concept illustrated by the production possibilities frontier. opportunity cost 129 to display the answer.

130 Reviewing the Facts (cont.) Describe incremental decision making. making a decision in small stages or steps so that the decision can be reversed without too much being lost 130 to display the answer.

131 Reviewing the Facts (cont.) Explain why economic education is important. It helps people become better decision makers. 131 to display the answer.

132 Thinking Critically Understanding Cause and Effect Suppose that Alpha, shown in Figure 1.6 on page 23, decided to produce more guns and less butter. What would Alpha have to do to make the change? What would be the opportunity cost of producing more guns? What conditions would have to be met for the new mix of guns and butter to be on the production possibilities frontier? Resources have to be shifted from guns to butter. The opportunity cost of producing more guns is the production of less butter. All of Alpha s resources would have to be employed. 132 to display the answer.

133 Thinking Critically (cont.) Understanding Cause and Effect Copy the two diagrams of the production possibilities frontiers shown shown on page 29 of your textbook. Then, write captions that explain what each diagram is showing. The diagram on the left shows increase in productivity/resources in gun industry; the diagram on the right shows increase in resources/ productivity in butter industry. 133 to display the answer.

134 Applying Economic Skills Scarcity What three choices must a society make because of scarcity? WHAT to produce? HOW to produce? FOR WHOM to produce? 134 to display the answer.

135 Applying Economic Skills (cont.) Utility How is a product s utility related to its value? For a product to have value, it must have utility. 135 to display the answer.

136 Applying Economic Skills (cont.) Cost-Benefit Analysis How would you apply the concept of costbenefit analysis to the decision to finish high school? To further your education? Make a matrix listing choices and the costs and benefits (including time, money, and satisfaction) of each educational choice. 136 to display the answer.

137 Suppose that scientists invented a car that ran efficiently on water. Explain, in terms of scarcity, how this might affect the price of water. Explain, in terms of utility, how this might affect the price of gasoline. The more water that is needed, the scarcer it becomes, and so the price of water might go up. The less gasoline that is needed, the less utility it has, and so the price of gasoline might go down. 137 to display the answer.

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146 Create a television-viewing log chronicling the number and types of economics-related items presented on the nightly news. Watch national newscasts on the networks, CNN national newscasts, and local newscasts. Record the date, the subject of the item, and the length of time devoted to the item.

147 Explore online information about the topics introduced in this chapter. Click on the Connect button to launch your browser and go to the Economics: Principles and Practices Web site. At this site, you will find interactive activities, current events information, and Web sites correlated with the chapters and units in the textbook. When you finish exploring, exit the browser program to return to this presentation. If you experience difficulty connecting to the Web site, manually launch your Web browser and go to

148 Explore online information about the topics introduced in this chapter. Click on the Connect button to launch your browser and go to the BusinessWeek Web site. At this site, you will find up-to-date information dealing with all aspects of economics. When you finish exploring, exit the browser program to return to this presentation. If you experience difficulty connecting to the Web site, manually launch your Web browser and go to

149 Durable Goods Orders The Department of Commerce s report on durable goods orders highlights the number of new orders placed with domestic manufacturers for good intended to last over three years. The report is divided into broad categories; these include defense, nondefense, and capital and noncapital goods. Noncapital goods are generally of the consumer spending variety and include automobiles and large appliances. Capital goods tend to be of the investment spending nature, while defense goods indicate government spending.

150 United States Leads in Entrepreneurs Just as students in the United States participate in programs on entrepreneurship, students in other countries study the same principles. In Ireland, students aged 12 to 18 can be part of the Young Entrepreneurs Programme. The purpose of the program is to encourage students to learn about starting their own businesses. Students sometimes sell their products or services to other students and sometimes to the general public. During the school year, more than 7,000 students in 250 schools took part in the program, starting about 2,300 businesses.

151 Wealth in Other Cultures Personal wealth has been viewed in a variety of different ways in cultures around the world. In the past, the camel, an animal indispensable for journeys across desert regions, was a highly prized possession in many Arab countries. Wealth and social standing were measured, in part, by the number of camels a person owned.

152 The term conspicuous consumption which means the use of a good or service to impress others was coined by economist and social critic Thorstein Veblen in his study The Theory of the Leisure Class (1899).

153 Stock Trading One area of economic activity that computers and the Internet have revolutionized is stock trading. For certain stocks, traders no longer have to use a stockbroker to buy or sell stock. Instead, using computers, they can trade directly with one another. They also use certain software programs to help them analyze stocks. Using a number of sites on the Internet, traders can keep track of stocks as they are being bought and sold, and keep track of the buyers and sellers as well.

154 The Role of the Entrepreneur Alexis de Tocqueville, a French traveler, wrote about his travels in the United States during the 1830s. His book, Democracy in America, is a two-volume study of the American people and their institutions. Read the BusinessWeek Newsclip article on page 11 of your textbook. Learn why Democracy in America is still relevant today. This feature is found on page 11 of your textbook. Click the Speaker button to listen to an audio introduction. Continued on next slide.

155 The Role of the Entrepreneur Summarizing Information What are the entrepreneurial qualities of small companies? They are nimble, innovative, close to the customer, and quick to the market. to display the answer. This feature is found on page 11 of your textbook. Continued on next slide.

156 The Role of the Entrepreneur Finding the Main Idea What does the writer mean by diseconomies of scale? The writer is referring to the slowness to change and the high costs that can result when companies become too large. to display the answer. This feature is found on page 11 of your textbook.

157 What Is Economics? Your Role As A Consumer Click on a hyperlink to choose that topic.

158 Economics and You Video 2: What Is Economics? After viewing What Is Economics?, you should be able to: Define economics. Give an example of economic scarcity. Distinguish between needs and wants. Discuss the trade-offs involved in allocating scarce resources. to display the information. Continued on next slide.

159 Economics and You Video 2: What Is Economics? Click inside this box to play the preview. Side 1 Disc 1 Chapter 2 Click the Videodisc button anytime throughout this section to play the complete video if you have a videodisc player attached to your computer. Click the Forward button to view the discussion questions and other related slides. Continued on next slide.

160 Economics and You Video 2: What Is Economics? What is economic scarcity? Economic scarcity occurs when available resources are not sufficiently abundant to satisfy the total demand for them. Side 1 Disc 1 Chapter 2 to display the answer.

161 Economics and You Video 9: Your Role As A Consumer After viewing Your Role As A Consumer, you should be able to: Compare and contrast disposable and discretionary income. Identify aspects of wise consumer decision making. Describe some federal consumer protection activities. to display the information. Continued on next slide.

162 Economics and You Video 9: Your Role As A Consumer Click inside this box to play the preview. Side 1 Disc 1 Chapter 9 Click the Videodisc button anytime throughout this section to play the complete video if you have a videodisc player attached to your computer. Click the Forward button to view the discussion questions and other related slides. Continued on next slide.

163 Economics and You Video 9: Your Role As A Consumer What is the difference between disposable income and discretionary income? Disposable income is the money left after taxes that is spent on basics. Discretionary income is the money left over for nonessentials. Side 1 Disc 1 Chapter 9 to display the answer.

164 Sequencing and Categorizing Information Sequencing involves placing facts in the order in which they occur. Categorizing entails organizing information into groups of related facts and ideas. Both actions help you deal with large quantities of information in an understandable way. Continued on next slide. This feature is found on page 26 of your textbook.

165 Learning the Skill Sequencing and Categorizing Information Look for dates or clue words that provide you with a chronological order: in 2004, the late 1990s, first, then, finally, and so on. If the information does not happen in sequence, you may categorize it instead. To do so, look for information with similar characteristics. List these characteristics, or categories, as the headings on a chart. to display the information. This feature is found on page 26 of your textbook. Continued on next slide.

166 Sequencing and Categorizing Information Learning the Skill (cont.) As you read, fill in details under the proper category on the chart. This feature is found on page 26 of your textbook. Continued on next slide.

167 Practicing the Skill Sequencing and Categorizing Information Read the excerpts on page 26 of your textbook, compare the information they contain, then answer the questions on the following slides. This feature is found on page 26 of your textbook. Continued on next slide.

168 Sequencing and Categorizing Information Which passage s information can be organized sequentially? List the main ideas in chronological order. Excerpt A; the U.S. dominated the world steel market (1950s, 1960s), foreign competition cut into U.S. dominance (1980s), U.S. steel production improved (1990), work-hours required to produce a ton of steel dropped in the U.S. (1990), beginning in 1947 trade agreements protected U.S. jobs. to display the answer. This feature is found on page 26 of your textbook. Continued on next slide.

169 Sequencing and Categorizing Information What categories can you use to organize the information in the other excerpt? Answers will vary. to display the answer. This feature is found on page 26 of your textbook.

170 Adam Smith Click the picture to learn more about Adam Smith. Be prepared to answer the questions that appear on the next two slides. Continued on next slide. This feature is found on page 18 of your textbook.