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What is an example of the kinds of choices that a business would have to make because of scarcity?
A business might have to choose between expanding operations or launching a new product or service; between hiring more workers or buying new equipment; about cutting a product line or laying off workers in more difficult times.
According to the lesson, scarcity is a problem that all societies face. Is the same true of shortages? Why or why not?
Shortages do not necessarily occur and are not a fundamental principle of economics. They are a function of an imbalance in supply and demand for a good or service; as long as those economic factors are in balance, shortages will not occur.
Jean-Baptiste Say thought that entrepreneurs should be considered a fourth factor of production. Do you agree or not? Explain your reasoning.
Entrepreneurs should not be considered a factor of production because they are not the only individuals or organizations that combine factors of production to produce goods or services. Governments or nonprofit organizations can do so as well, and they do not need to have entrepreneurs to be able to do so, which means that entrepreneurs are not essential to the process of producing goods and services.
Think of a good or service that you consumed today. List at least five factors of production that were used to produce that good or service. Include at least one example of each of the three types of factors—land, labor, and capital.
I took the bus. The trip used land (oil); labor (driver’s work); and capital (the bus, the streets, the bus driver’s skill and knowledge of driving).
Read the first paragraph of “The Effectiveness of Capital.” What do you think “productive” means?
Productive means able to produce more goods and services more efficiently, that is, with fewer resources.
Which of the three factors of production do you think is most important to economic success? Why?
Capital is most important to economic success because it is increases productivity more than the other factors
How does scarcity force people to make economic choices?
Because resources are scarce, people cannot satisfy all their needs and wants.
low supply of a good or service? SHORTAGE
Analyze Maps Germany faces a scarcity of what resource? What might be a possible cause of that scarcity?
(Germany has a scarcity of skilled workers. This could be caused by low birth rates, emigration out of the country, or lack of education to create those skilled workers)
What resource becomes less scarce as a result of using a dishwasher to wash dishes every day?
(Time becomes less scarce, but money becomes scarcer.)
Which of these would be an alternative use for farmland?amusment park
Which statement best characterizes the condition of petroleum scarcity in the United States as represented in the graph? DEMAND EXCEEDS DOMESTIC PRODUCTION
How does the United States meet its scarcity of refined petroleum products? What other approaches could it use?
The United States meets its scarcity of refined petroleum products by importing. It could also try to increase domestic production or consume fewer petroleum products
What are the three factors of production? LAND LABOR CAPITAL
Which of the following is a benefit that a business is likely to attain from purchasing new equipment? INCREASED PRODUCTIVITY
Why is there scarcity even in an affluent country like the United States? RESOURCES ARE LIMITED BUT WANTS ARE UNLIMITED
Why does every decision involve a trade-off? Every decision involves a trade-off because resources are limited (scarcity).Use your own words to describe the trade-off known as “guns or butter.”
Government is responsible for the safety and well being of citizens. Because of limited resources, or scarcity, governments must decide how many resources to devote to security (guns) and how many to domestic needs (butter). Applying more resources to one means applying fewer to the other.
Read the first paragraph of “Opportunity Cost.” What do you think the word “alternative” means? How does it relate to opportunity cost?
Alternative means “choice.” The opportunity cost is the most desirable choice, or alternative, given up.
How might intangible benefits affect Karen’s decision?
Karen’s decision may depend on which intangible benefits she values the most
Refer to Karen’s Decision-Making Grid in “Opportunity Cost.” Which benefits are intangible? Which benefits are measurable?
Intangible benefits include enjoying more sleep, more energy, teacher and parental approval, personal satisfaction; the measurable benefit is a better grade.
Consider what the word “margin” means. Then, explain in your own words what it means to “think at the margin.
”Margin means “edge,” or “end”.”Thinking at the margin explores the limits of adding a unit while still gaining a benefit.
Why do individuals, businesses, and governments make trade-offs? BECAUSE RESOURCES ARE LIMITED
What are the two main parts of a cost/benefit analysis? How are they used to make a decision?
COST/BENEFIT analysis are marginal cost of adding a unit and marginal benefit of adding a unit. When marginal costs become greater than marginal benefits, it is no longer profitable to add another unit.
Which statement best describes opportunity cost? OPPORTUNITY COST IS THE BEST ALTERNATIVE DESICION
In which of these situations would a manufacturer decide to produce more units? THE MARGINAL COST IS LESS THAN THE MARGINAL BENEFIT
What is an opportunity cost? THE BEST ALTERNATIVE NOT CHOSEN
What are economists referring to when they say “choosing is refusing”? OPPORTUNITY COST
How do people make economic decisions?
by weighing the costs and benefits of each alternative and choosing the better one. They give up the next most attractive alternative, which is the opportunity cost of the alternative they chose.
An opportunity cost is the best alternative that is given up when a decision is made.
production possibilities for watermelons and shoes. What keeps Capeland from producing 21 million tons of watermelons each year as well as 15 million pairs of shoes?
The point for 21 million watermelons and 15 million pairs of shoes is outside of the production possibilities curve. Capeland’s resources are limited, so that without increasing its efficiency in some way, it cannot produce more goods than those that are shown on the curve.
Apply Concepts Many countries produce a single good upon which much of their economy depends. That good might be coffee or wool or oil. How might a production possibilities curve help economists in such a country determine how to diversify their economy?
They could determine the trade-offs or opportunity costs associated with producing more of a second good and less of the first.
Summarize As you read “Changing Production Possibilities,” use this graphic organizer to record details about the production possibilities curve.
Central Circle: Production Possibilities Curve, Outer Circles: used to analyze trade-offs, compares two goods and services, curved to the lines shows law of increasing costs, shift to left shows economics decline (fewer resources). Shift to the right shows economic growth (more resources), points inside line show underutilization
Draw Conclusions An inventor found a new way to produce more steel from each ton of her country’s iron ore. How would a production possibilities curve reflect the application of that discovery to the country’s production of steel cookware? Why?
The production possibilities frontier would shift to the right, because the new invention would increase the nation’s overall efficiency in producing one good, steel.
Identify Cause and Effect If a country chose to produce twice as many wooden chairs as before, how would that affect its production of wooden tables? How would the law of increasing costs apply to the chairs?
Production of tables would decrease, because of resource scarcity—a limited amount of wood. As production shifts from tables to chairs, more and more resources are needed to increase production of the chairs.
Compare and Contrast The leader of Capeland gave all workers a month-long vacation from work to celebrate a national holiday. Would this show up on the production possibilities curve as underutilization or as a shift of the production possibilities frontier to the left? Explain.
Underutilization—Capeland’s economy would be deemed inefficient, because it would be using fewer of its existing resources than it is capable of. (Underutilization refers to not using a country’s full productive capacity, whereas a shift to the left refers to a decrease in that productive capacity.)
Capeland can produce these different combinations of watermelons and shoes. Analyze Charts If Capeland produces 20 million tons of watermelons, how many pairs of shoes can it produce? (5 million pairs of shoes)
Analyze Interactions Capeland’s workers made shoes by hand. This year, Capeland Shoe Company bought 100 computerized shoe-sewing machines. At the same time, the government funded a shoe-making course at Capeland Community College. Why did it make economic sense for the government to fund the course?
The company needed trained workers. Technology can increase a country’s efficiency, but only if the workers are trained in how to put the technology to use
Analyze Graphs Is it more efficient to produce 8 million tons of watermelons and 14 million pairs of shoes or 21 million tons of watermelons and no shoes? Explain your answer.
(Neither is more efficient. Each combination represents an equally efficient use of resources because both points represented by these two combinations are on the production possibilities frontier.)
Analyze Graphs Based on this curve, how would you describe a situation in which Capeland produces 10 million tons of watermelons and 10 million pairs of shoes? (underutilization of resources)
Automation, the use of equipment that runs largely on its own, increases efficiency. Analyze Political Cartoons What concern might the cartoonist be expressing about this technology?
The cartoonist might be concerned that automation can eliminate jobs and increase unemployment.)
If Capeland switches from producing 0 watermelons to producing 18 million tons of watermelons, what does it give up? 6million pairs of shoes
A country has two main products: hats and grapes. The best resources for producing grapes are least suited to making hats.
Give at least three examples of trade-offs that people are likely to make when buying a home.
price vs. size of home, price vs. location, price vs. newness of home, size vs. location, newness of home vs. location.