What is Economics? Chapter 18 (Part 1)

Economic Choices  To properly perform our civic duty, we should be INFORMED citizens  Part of being informed is understanding the economic system  This understanding is put into practice all the time - $10 problem  Needs vs. Wants  Needs – required for survival (food, clothes, shelter)  Wants – things we would like to have (entertainment, vacations)  Our choices are based on the $10 problem: we do not have enough resources to satisfy all our wants and needs

Economics  Economics – the study of how we make decisions in a world in which resources are limited  It is also the study of how things are made, bought, sold, and used  Microeconomics - study of the small picture – study and behavior of the decision making of small units such as individuals and businesses  Macroeconomics – study of the big picture – study of the economy as a whole and decision making of large units such as governments, whole industries, and societies  Micro and Macroeconomics are examples of economic models – a theory that tries to explain human economic behavior  Economic System – a country’s way of producing the things its people want and need  This economic system helps determine how basic economic decisions are made  America’s economic system is called Capitalism – businesses are allowed to compete for profit with a minimum amount of government interference

The Problem of Scarcity  Resources – the things used in making goods and producing services  The amount of goods and services a country can produce depends on its resources  Examples: Natural Resources - wood, soil, water and Human Resources – people who provide labor, skills, knowledge  Country’s that are able of satisfying its people’s wants and needs are considered capable  When they don’t, there is considered to be a scarcity  Scarcity – occurs whenever we do not have enough resources to produce all the things we would like to have  This greatly affects decisions concerning what and how much to produce and how the services will be produced

What to Produce?  One of the biggest questions a society has to ask itself – what to produce?  The math is simple – if more of one item is produced, then less of something else is being produced  How do choices look?  Choose to make weapons for defense or to produce services for people who are retired?  Choose between improving our roads/schools or building a new stadium for athletic events?  What decisions go into making which choice?

How to Produce?/For Whom to Produce?  Once a society has decided what they will produce, the must determine HOW they will produce these resources  We need more oil 1.Do we drill in an Alaskan wildlife sanctuary? 2.Limit oil drilling to less fragile areas?  Once goods are produced, a society must decide how those goods are distributed  Most goods in the United States are distributed on a price system.  Other options: majority rule, a lottery, first-come-first-serve, sharing equally, military force