Lesson 1.3

​Lesson 1.3
"Using Economic Systems"

​Essential Question

​In what ways do people cope with the problem of scarcity?

​Students will be able to:

• Re-Identify the Factors of Production

• Describe Opportunity Cost and Trade-Off

• Trace the participants in the Circular Flow Model of economic activity.

​Economic Growth

​Economic Growth - occurs when a nation's total output of goods and services increases over time (think GDP...from lesson 1). Economic growth is important for two reason: 1) Because of scarcity, everybody wants more goods and services than they have now. 2) If the population is growing, there will be even more people wanting goods and services to satisfy their wants and needs in the future.

​The easiest way to show Economic Growth, is to use the Production Possibilities Curve (frontier).

With all factors of production fully employed, the Frontier shows were our production levels should be - But how does growth occur?

Maybe the population grew, the stock of capital may have expanded, technology may have improved, or productivity may have increased.

​Production Possibilities Curve (Frontier)

Multiple Choice

In describing the movement of a Frontier during Economic Growth, we would say that the curved has__________________to demonstrate growth.

• moved down

• shifted left

• shifted right

• moved up

​Productivity

​Productivity is a measure of the amount of goods and services produced with a given amount of resources in a specific time period.

If a company produces 5,000 pencils in an hour, and the it produced 5,100 in the next hour with the same amount of land, labor, and capital...then productivity went up in the second hour.

​Human Capital

​A major contribution to productivity comes from investments in Human Capital - the sum of people's skills, abilities, health, knowledge and motivation.

​Division of Labor

​Division of Labor is a way of organizing work so that each worker or work group completes a separate part of an overall task. A worker who performs a few tasks many times a day is likely to be more proficient than a worker who performs several different tasks in the same period.

​Division of Labor at an Automobile Plant

​

​...leading to Specialization... this occurs when factors of production perform only tasks they can do better or more efficiently than others.

​Division of Labor & Specialization
...think Henry Ford's "Assembly Line"!

​The
Circular Flow
Model

The model shows how the market (a location) or other mechanism (website) allows buyers and sellers to exchange a specific product. Markets can be local, national, global and even in cyberspace.

​The Factor Market

Also called "resource market", is where all of the Factors of Production are bought and sold. The is where Entrepreneurs hire Labor for wages, acquire Land in return for rent and borrow money to purchase machines (Capital) to operate their business.

​The Product Market

The market where producers sell their goods & services. After individuals receive income (paycheck) from the resources (labor) they sell in the Factor Market, they spend it in the Product Market.

​Thinking Like an Economist

• Economics Models reduce complex situations to their most basic elements so that they can be more easily understood. (Like making only cars and clothing.)

• All models are based on assumptions.

• A Benefit-Cost Analysis compares the benefits of an action or decision with its' expected costs. (Large scale thinking)

• A Marginal Analysis compares the marginal (or additional) benefit of doing something with the marginal cost of doing it. (Small scale thinking)

​Marginal Analysis

Open Ended

Exit Question:

Explain how Productivity leads to economic growth.