Economics Fundamentals Chapter 1 Coach Roberts Spring 2011

Basics Concepts of needs such as: Food, Clothing, and Shelter—and Wants, which are ways of expressing needs.

The Fundamental problem is….. The fundamental problem facing all societies is that of Scarcity. Scarcity is the condition that results from society not having enough resources to [produce all the things people would like to have.

You will see this MANY times! The notion of TINSTAAFL, which stands for There Is No Such Thing As A Free Lunch, is often used to remind us that resources are scarce and that we must make careful economic decisions regarding: WHAT, HOW, and FOR WHOM to produce.

4 Factor of Productions Other concepts relevant to economics, such as the four factors of production- 1. Land- Natural Resources 2. Capital- tools, machines, and factories used to produce goods and services. These are called capital goods to distinguish them from financial capital, the money used to buy said equipment.

4 Factor of Productions 3. Labor- people will all their efforts, abilities and skills. 4. Entrepreneurs- a risk taker in search of profits who does something new with existing resources.

Goods, services, and consumers -Introduces a number of key economic concepts, including utility, value, and wealth. The concepts of goods, services, consumers, markets, factor markets, product markets, productivity, economic growth, and economic interdependence are explained and are linked in a circular flow diagram.

Goods A Consumer Good- Is intended for use by an individual. A Capital Good- a manufactured good are used to produce other goods and services. A Durable Good- is intended to used for 3 years or longer robots, cars, ovens, etc A Non-durable Good- is intended to be used less than 3 years. Clothes, food, writing paper.

Services Is work that is performed for someone. This area of Economics can include: Haircuts Home Repairs Dry Cleaners Lawyers Doctors. The MAIN difference between a good and a service, a service is intangible.

Consumer Do you spend money? You then are a consumer. This will satisfy wants and needs.

Value, Utility, and Wealth Value- Worth Paradox of Value- Something of a necessity like water has little monetary value whereas some non-necessities like diamonds have a MUCH higher value.

Utility The capacity to be useful and provide satisfaction. Laptop iPod Concert These goods and services may bring satisfaction to one person but not to another.

Wealth The accumulation of products that are tangible, scarce, useful and transferable. $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Productivity This is necessary for economic growth, and growth takes place when specialization and the division of labor (specialization) are present. Human capital, the sum of our skills, abilities, health, and motivation, and economic interdependence are another important components of growth.

Choices! Deals with the way economists think about choices. Choices are explained in terms of trade-offs, or alternatives that are available whenever a decision is made.

Choices….. 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. Ex. 100 F-35’s vs. Healthcare

Trade-offs can be analyzed with a decision-making matrix, or illustrated with a graph. The production possibilities frontier, the decision-making matrix, and the circular flow diagram are some of the more useful "tools" used by economists.

The production possibilities frontier Pg 23 Fig 1.6

Questions? What is the cause of Scarcity? List 3 basic questions every society must face? Describe Goods, Services, and Consumers What is opportunity costs? What are the four factors of production?