Economics Chapter 1

Bell Ringer 8/14 What is meant by the term SCARCITY?

Economics Economics is the study of how people try to satisfy what appears to be seemingly unlimited wants through careful use of relatively scarce resources

Needs and Wants A need is a basic requirement for survival. Includes food, water, and shelter A want is a way of expressing a need A variety of wants can satisfy a need…wants tend to be broader than needs

Needs and Wants The fundamental economic problem facing all societies is scarcity Scarcity is the condition that results for society not having enough resources to produce all the things people would like to have

3 Basic Questions of Economics 1. What to Produce? 2. How to Produce? 3. For Whom to Produce? The answers to these questions decide how resources will be allocated and used to satisfy the needs and wants of societies.

The Factors of Production F of P are all the processes involved in making wealth and bringing it from its place of origin to the consumer 1. Land 2. Labor 3. Capital 4. Entrepreneurship

The Factors of Production 1. Land The entire material universe exclusive of people and their products Everything physical (other than people) which is not the result of human effort is within the economic definition of land

The Factors of Production 2. Labor All human exertion in the production of wealth All who participate in production by their mental and/or physical effort are laborers in the economic sense

The Factors of Production 3. Capital Wealth used to produce more wealth A machine is a wealth

The Factors of Production 4. Entrepreneurship A risk-taker in search of profits The innovators responsible for production

Bell Ringer 8 / 16 Think of a decision you made over the summer. (It can be vacation, football camp, purchasing something, your job, your vehicle, etc) Explain your understanding of needs, wants, and scarcity in relation to the outcome of the decision you made.

Production The process of creating goods and services When all F of P are present, production can take place

Basic Economic Concepts Goods—items that are economically useful or satisfies an economic want Consumer Goods--used by individuals Capital Goods--goods used to produce more goods Services—work that is performed for someone Consumer—a person who uses a good or service

Basic Economic Concepts Value—worth that can be expressed in dollars Utility—the capacity to be useful and provide satisfaction Wealth—the accumulation of products that are tangible, scarce, useful, and transferable from one person to another

What shapes the economic choices people make? 1) Incentives-are benefits offered to encourage people to act in certain ways Examples: good grades, wages earned, praise or recognition 2) Utility- The benefits or satisfaction gained from the use of a good or service 3) Economize- make decisions on what you believe is the best combination of costs and benefits

No Free Lunch A person or a society can not get something for nothing Even if something appears to be free, there is always a cost to the person or to society as a whole even though that cost may be hidden

Trade-Offs The alternative people give up when they make choices A situation that involves losing one quality or aspect of something in return for gaining another quality or aspect “This or That” Examples PS4 or XBOX 1 Go to college or enter the work force Car or Truck

Opportunity Costs The value of something that is given up to get something else that is wanted The cost of the next best alternative use of money, time, or resources when one choice is made rather than another

Paradox of Value Why are some necessities, such as water, have little monetary value while some non-necessities like diamonds, have a much higher value? Economist know that scarcity is required for value

The Circular Flow of Economic Activity A market is a mechanism that allows buyers and sellers to exchange a certain economic product Markets are the connectors between producers and consumers Factor Markets—where productive resources are bought and sold Product Markets—where producers sell their goods and services to consumers

Growth and Productivity Economic growth—occurs when a nation’s total output of goods and services increases over time Economic productivity—is a measure of the amount of output produced by a given amount of inputs during a specific period of time

Growth and Productivity Division of labor—when work is arranged so that workers do fewer tasks than before Specialization– when F of P perform tasks that they can do relatively more efficiently than others

Growth and Productivity Human Capital—the sum of the skills, abilities, health, and motivation of people Many gov’ts and businesses invest in human capital(labor) by providing education(training) and health care to improve skills and motivation of its workers

Growth and Productivity Economic interdependence—we rely on others, and others rely on us to provide the goods and services that we consume