Economics Chapter 1 Section 1

Basic Problem in Econ Wants, needs, goods, services Economics-study of how individuals, families, businesses & societies use limited resources to fulfill their unlimited wants. Econ is divided into 2 parts

Cont…… Part 1: Microeconomics- Behavior & decision making by small units such as individuals or firms. Part 2: Macroeconomics- Economy as a whole & decision making by large units such as Governments.

Problem of Scarcity The basic problem of econ is scarcity. Scarcity means that people do not & can not have enough income& time to satisfy their want. It does not matter how rich you are, you do not have unlimited time. (See figure 1.1) Shortages are after hurricanes; scarcity is competing alternative uses of resources.

Factors of Production F of P- resources needed to produce goods & services. Productive resources: land labor, capital, entrepreneurship. (figure 1.2) LAND: natural resources that exist w/o human intervention. (gifts of nature: animals, trees)

Cont………… LABOR: Work people do(human resources) to produce goods & services. Goods- tangible items that people buy. Services- activities done for others for a fee. CAPITAL: previously manufactured goods used to make other goods & services. (machines, buildings, & tools used to make cars.)

Still Cont……….. Capital also increases productivity. Productivity is greater quantities of goods & services are produced in better and faster ways. ENTREPRENEURSHIP: People who take risks by creating new products or starting new businesses. TECHNOLOGY: Use of science to develop new products & new methods of producing & distributing goods & services.

Still, Still Cont…….. Effects on Income & Wealth Distribution of factors of production affects a nation’s income distribution. % of Americans are rich & poor. Nations w/many resources will be wealthier.

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