WHAT IS ECONOMICS? Economics: the study of how individuals, businesses, and societies seek to satisfy their needs and wants by making choices. Why must we make choices/decisions? Scarcity

SCARCITY Scarcity: There are limited quantities of resources to meet our unlimited needs and wants for goods and services Scarcity is an ever-present situation unlike shortages, which are temporary

Goods – physical objects such. as shoes and shirts Goods – physical objects such as shoes and shirts (consumer and capital)

Services – actions or activities that one person per- forms for another such as haircuts or dental checkups

Goods and services are scarce because they are made from scarce resources… ...another term for the resources necessary to make all goods and services is…

FACTORS OF PRODUCTION Land: all natural resources used to produce goods and services (and not used up in the consumption of those goods and services)

FACTORS OF PRODUCTION Labor: the effort that a person devotes to a task for which that person is paid.

FACTORS OF PRODUCTION Capital (physical and human): any human-made resource that is used to produce other goods and services

FACTORS OF PRODUCTION (capital continued) Physical capital (capital goods): human-made object used to create goods and services Human capital: the knowledge and skills a worker gains through education and experience

Put the following items in their proper place in your notes. Propane Knowledge of recipe Oven A baker baking Water (to wash) Mixing bowls Apple Pie A server serving Culinary school degree Taxicab Driver’s license A taxi ride Oil Driver driving Rubber Cellphone Street knowledge Dispatcher dispatching

ENTREPRENEURS Entrepreneurs: risk-takers who decide how to combine the factors of production to create new goods and services

GUNS OR BUTTER? All decisions involve trade-offs: the alternatives we give up whenever we choose one course of action over another “Guns or butter” is a simplification of the trade-offs countries face. Resources devoted to producing “guns” (military goods) cannot be devoted to producing “butter” (consumer goods) and vice versa.

“Opportunity cost is opportunity lost” Opportunity cost: the most desirable alternative given up as the result of a decision.

Individual Situation: A high school senior is deciding where to go to college. She wants to experience a different part of the country so she is seriously considering going out-of-state. However, she is also very close to her family and friends, many of whom will be staying local. Questions: What does she do? What is the opportunity cost of her decision?

Business Situation: A popular and profitable regional restaurant wants to expand across the country in order to maximize profits. In doing so however, it will be more difficult to maintain the quality control it is known for and its regional reputation may be tarnished. Questions: What does it do? What will be the opportunity cost of that decision?

SOCIETY Situation: A notoriously smoggy city wants to clean up its air by forcing businesses to abide by new, stricter environmental regulations. In doing so however, it may force some businesses to close or move, taking away much-needed jobs. Questions: What does it do? What is the opportunity cost of that decision?

The Opp. Cost of Cheap Oil Questions: What is the opportunity cost of _________? cheap oil for American workers in the energy-sector? Answer: Loss of relatively high-paying middle-class jobs in the oil and related industries.

The Opp. Cost of Cheap Oil Questions: What is the opportunity cost of _________? higher oil prices for the American consumer? Answer: They have to pay higher gasoline prices, meaning they have less money to spend on other goods/services (and then fewer jobs in those industries).