Monday, October 04, 2010

Honors Business Economics Chapter 1 Section 3, 5 October 2010

Current Events:

DEMO Fall 2010
Market Segment
Funding Amount
Funding Round
Series A
Funding Details
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No direct competitors
Product Description

TuneUp is the #1 selling plug-in for iTunes and Windows Media Player that lets you get more from the music you love: Fix mislabeled or missing song information (like "Track 01" and "Unknown Artist"); fill in missing cover art; get upcoming concert alerts based on the artists in your music collection; experience the best music-related content from the web; and share stats about your music collection with your social network.

Market Opportunity
Anyone who uses iTunes and Windows Media Player. We estimate that between the two, there are 600 million users worldwide.

Why do innovators and entrepreneurs attempt to build a better mousetrap?

Points above the production possibilities frontier cannot be produced using current resources and technology. To produce beyond the frontier, a more productive point is not obtainable unless more or higher quality resources--human capital--become available or technological change--entrepreneurship or innovation--occurs.

Results from yesterday's poll are available here.

To participate, you can only vote online:

As a venture capitalist, you can only fund one entrepreneur. Which one would you fund?

If you were an investor in entrepreneurs, would you fund Vizerra for virtually offering the best world landmarks without ever leaving home?
Yes 12 Votes 46%
No 14 Votes 54%
Total number of people voted: 26

Chapter 1: What Is Economics?

Section 3: Economic Choices and Decision Making, p. 19

Choices are explained in terms of trade-offs, or alternatives that are available whenever a decision is made. The cost of every decision is measured in terms of its opportunity cost, which is the cost of the next best alternative use of money, time, or resources when one choice is made rather than another. Trade-offs can be analyzed with a production possibilities frontier, a diagram representing various combinations of goods and services an economy can produce when all its resources are in use. Furthermore, economists use cost-benefit analysis to evaluate choices.

One of the reasons for the law of increasing cost is the law of diminishing returns (as in the example above). Each extra hour devoted to the study of economics results in a smaller increase in the economics grade and a larger reduction in the calculus grade because of diminishing returns to time spent on either activity.
A second reason for the law of increasing cost is the fact that resources are specialized. Some resources are better suited for some some types of productive activities than for other types of production. Suppose, for example, that a farmer is producing both wheat and corn. Some land is very well suited for growing wheat, while other land is relatively better suit for growing corn. Some workers may be more adept at growing wheat than corn. Some farm equipment is better suited for planting and harvesting corn.

The diagram below illustrates the PPC curve for this farmer.

At the top of this PPC, the farmer is producing only corn. To produce more wheat, the farmer must transfer resources from corn production to wheat production. Initially, however, he or she will transfer those resources that are relatively better suited for wheat production. This allows wheat production to increase with only a relatively small reduction in the quantity of corn produced. Each additional increase in wheat production, however, requires the use of resources that are relatively less well suited for wheat production, resulting in a rising marginal opportunity cost of wheat.

Now, let's suppose that this farmer either does not use all of the available resources, or uses them in a less than optimal manner (i.e., either unemployment or underemployment occurs). In this case, the farmer will produce at a point that lies below the production possibilities curve (as illustrated by point A in the diagram below).

In practice, all firms and all economies operate below their production possibilities frontier. Firms and economies, however, generally attempt to get as close to the frontier as possible.

Points above the production possibilities cannot be produced using current resources and technology. In the diagram below, point B is not obtainable unless more or higher quality resources become available or technological change occurs.

An increase in the quantity or quantity of resources will cause the production possibilities curve to shift outward (the curve should shift outwards for both wheat and corn). This type of outward shift could also be caused by technological change that increases the production of both goods.
Thus, for the production of both goods: an increase in the quantity or quantity of resources will cause the production possibilities curve to shift outward.


In some cases, however, technological change will only increase the production of a specific good. The diagram below illustrates the effect of a technological change in wheat production that does not affect corn production.

Identifying Possible Alternatives

Fully Employed Resources

The Cost of Idle Resources

Opportunity Cost, p. 22

Economic Growth

Reading Check


How can the production possibilities frontier be used to illustrate economic growth?

Thinking Like an Economist, p. 23

Build Simple Models

Apply Cost-Benefit Analysis, p. 24

Cost/Benefit Analysis, 5:24

Here's a short little video that explains the economic concept of Cost/Benefit Analysis, made by high school students for their economics class. We do not own the music, "My Life Would Suck Without You" by Kelly Clarkson. Also, our use of an H.E.B. store as our filming location was a matter of convenience. We did not intend to promote or disparage the store in any way.

Take Small, Incremental Steps

The Road Ahead

Topics and Issues

Economics for Citizenship, p. 25

Understand the World Around Us

Reading Check

Determining Cause and Effect

How do you think our society would be different if citizens did not study economics?
In an interconnected world of finite resources, understanding the principles that govern the allocation of goods and services—economics—is essential. Although economics has not traditionally been a part of the liberal arts core, informed citizenship in the 21st century requires instruction in economic principles and the fundamentals of the marketplace.

Yet, most colleges and Universities do not require Economics study. Schools receive credit for Economics if they require a course covering basic economic principles, preferably an introductory micro- or macroeconomics course taught by faculty from the economics or business departments.

In which colleges can I study Economics?

Consult the list of colleges that require Economics.

Case Study

Gap, Inc.


Sustainable Energy Systems: Scale, Tradeoffs, and Co-Benefits, 1:03:53

October 14, 2009 - Sally Benson, director of the Global Climate and Energy Project, Pamela Matson, dean of the Stanford School of Earth Sciences, Lynn Orr, director of the Precourt Institute for Energy, Stephen Schneider, Stanford professor of Interdisciplinary Environmental Studies, James Sweeney, director of the Precourt Energy Efficiency Center, and Buzz Thompson, co-director of the Woods Institute for the Environment, discuss the interconnected aspects of future sustainable energy systems with a focus on the scales, tradeoffs, and co-benefits involved.


Debates in Economics

Should the Minimum Wage Be Increased?

Chapter 2 Economic Systems and Decision Making

Section 1 Economic Systems
Section 2 Evaluating Economics Performance
Section 3 American Free Enterprise

Chapter Overviews

Section 1: Economic Systems

Economic systems help societies provide for the wants and needs of their people. Three major economic systems have evolved over the years: traditional, command, and market economies. In the traditional economy, the WHAT, HOW, and FOR WHOM questions are answered by tradition, customs, and even habits handed down from generation to generation. In a command economy, a central authority answers the three basic questions. In a market economy, decision making is decentralized with consumers and entrepreneurs playing a central role. Most economies in the world today feature some mix of traditional, command, and market economies.

Chapter 2, Video Library, 4:44

Chapter 2, Video Library


traditional economy


An underdeveloped economy in which communities use primitive tools and methods to harvest and hunt for food, often resulting in little economic growth. Traditional economies are often found in rural regions with high levels of subsistence farming. Countries that evolve their economies past the traditional level often develop into market economies or command economies.

Command Economy

An economy where supply and price are regulated by the government rather than market forces. Government planners decide which goods and services are produced and how they are distributed. The former Soviet Union was an example of a command economy. Also called a centrally planned economy.

Market economy

A system of allocating resources based only on the interaction of market forces, such as supply and demand. A true market economy is free of governmental influence, collusion and other external interference.

Interactive Graphic Organizers: Chapter 2, Section 1 - Reading Strategy


Why It Matters, p. 32

The BIG Idea

Guide to Reading, p. 33

Section Preview

Content Vocabulary

economic system

traditional economy

command economy

market economy



mixed economy



Academic Vocabulary




Reading Strategy

Comparing and Contrasting

Companies in the News

McDonald's and Hindu Culture

Traditional Economies, p. 34





Reading Check


What are the advantages an disadvantages of a traditional economy?

The Global Economy & You, p. 35

Command Economies


Examples, p. 36


Disadvantages, p. 37

Reading Check

Market Economies


Examples, p. 38


Disadvantages, p. 39

Reading Check


What are the main characteristics of a market economy?

Mixed Economies


Examples, p. 40


Disadvantages, p. 41

Reading Check


How can you explain the range of mixed economies in the world?

Section 1 Review

Case Study

The Home Depot

HW: email (or hard copy) me at

Ch. 1 Sec. 3

1. Gerard has two choices for a summer job--a manufacturing job that pays $10.25 per hour or a landscaping job that pays $8.65 an hour. At the landscaping company, he could work and have lunch with three of his closest friends.

For one 40-hour workweek, what would be the opportunity cost, in dollars, of accepting the landscaping job?

What would be the cost of accepting the manufacturing job?

Which would you choose if you were Gerard?