What is Economics Chapter 1

What we will learn: 2.1 Apply the concepts of basic economics. 2.3 Analyze economic problems and goals of society. 2.4 Analyze the economic problem of scarcity. values 2.5 Assess the importance of natural resources and their relationship to economic decision making.

What does that mean? define economics explain why scarcity and choice are the basis of economics Distinguish between shortages and scarcity describe what entrepreneurs do define the three factors of production explain how scarcity affects the factors of production

Terms to know Need Want Services Goods Scarcity Economics shortages Entrepreneur Factors of production Land Labor Capital Physical capital human capital

What is economics? Social Science concerned with the way society chooses to employ its limited resources which have alternative uses to produces goods and services for present and future consumption. The study of how society seeks to satisfy their needs and wants by making choices what is economics video

FACT: People cannot have everything they want and need

Need Something essential for survival Food Water Clothing Shelter Medical care

want Something that people desire but that is not necessary to survival

People satisfy their needs and wants with goods and services

Goods Physical objects that someone produces Food Clothing Video games

Services Actions or activities that one person performs for another Medical care Haircuts Waitress concert

The problem of limits People’s wants and needs are unlimited When one want is satisfied, another arises Goods and services, however, are limited No one can have an endless supply of anything Sooner or later, a limit is always reached

scarcity The fact that limited amounts of goods and services are available to meet unlimited wants

Scarcity forces people to make choices

If you decide to study for a test, you cannot go to the mall or do volunteer work at the same time A store must choose between hiring ten new workers or paying for more advertising to attract new customers A city council might debate whether to use its money to fix an aging school building or to hire more fire fighters

Economics is the study of how people seek to satisfy their needs and wants by making choices. Because people act individually, in groups (such as a business), and through governments, economists study all three.

Scarcity v shortage Scarcity is not the same as a shortage A shortage occurs when consumers want more of a good or service than producers are will to make available at a particular price Shortages can be temporary or long- term

Scarcity v shortages Unlike shortages, scarcity always exists There are not enough goods and services to supply all of society’s needs and wants That is because the resources that go into making those goods and services are scarce

What are those resources? Factors of production—land, labor, and capital

Entrepreneurs and the Factors of production Entrepreneurs are people who decide how to combine resources to create new goods and services Entrepreneurs are risk-takers They are willing to take a risk to make a profit Profit motive They develop new ideas, start businesses, create industries, and fuel growth

What is an entrepreneur? Anyone who opens a business, large or small They decide how to assemble the resources to make all goods and service Those resources are factors of production Land Labor Capital *some people believe that Entrepreneurs are the 4th factor of production

What entrepreneurs do Recognize a need or want Assemble the factors of production Provide goods or service

Look at an entrepreneur Kelly Kelly recognizes that her town needs something People want a snack that is both healthy and tasty Kelly asks… What if I opened a snack bar that served fruit and yogurt smoothies?

Look at an entrepreneur Kelly begins to pull together the factors of production she needs to turn her idea into a reality Natural resources People to do the work Objects used to create goods and services Acquired knowledge and skills Human-made resources

Look at an entrepreneur Kelly took a financial risk by opening her own business If the risk pays off, Kelly gets a profit, her employees get a wage, and her customers get a healthy snack

Factors of production Land Labor capital

Land Labor Capital

Land All natural resources used to produce goods and services Land for farming Raw materials found in land Oil Iron Coal Water forests

Labor The effort people devote to tasks for which they are paid Medical care by a doctor Classroom instruction by a teacher Tightening of a bolt by an assembly-line worker Labor is the human input into production the supply of workers available and their productivity An increase in the size and the quality of the labor force is vital if a country wants to achieve growth

capital Human-made resources that is used to produce other goods and services Two types—physical capital and human capital Physical capital—human-made objects used to create other goods and service—also known as capital goods Human capital—the knowledge and skills a worker gains through education and experience The more skills a worker gains, the more productive he or she becomes Buildings, roads, industrial plants, machinery, tools, processes, patents Physical and human capital are equally important

Doing the dishes A family of 6 people (human capital) washes the dishes after every meal (breakfast lunch and dinner) That is 21 meals a week It takes 30 minutes per meal for 2 people to scrape, stack, wash, dry, and put away dishes It takes the family 21 hours a week cleaning dishes

Doing the dishes If the family had a dishwasher (physical capital) It takes 1 family member 15 minutes after each meal to load the dishwasher It takes another family member to put away the dishes at the end of the day The chore that took 21 hours a week now only takes the family 7 hours to complete

Doing the dishes Benefits of using capital Extra time (14 hours) More knowledge—can apply knowledge of using a dishwasher to other appliances More productivity—family members can sue their resources and labor to do other chores, to learn other skills, or to simply enjoy themselves. Every family member benefits.

Scarcity and the factors of production All goods and services are scarce because the resources used to produce them are scarce

Scarce French fries Potatoes from afield in Idaho Ten gallons of water irrigated the plot where the potatoes grow Nurtured with fertilizers and protected with pesticides They are then harvested, processed, frozen, and transported to Elizabethton They are fried in corn oil from Nebraska and sprinkled with salt from Louisiana and served at Dairy Queen

Scarce French fries? All the factors of production used to produce those French fries are scarce Land and water is limited Labor to grow the crop and harvest, process, transport, and cook the potatoes is limited by the size, time, age, and energy of the population The physical capital available to create the French fries is limited– farm machines and cooking equipment

All goods and services are scarce This applies to blue jeans, cell phones, or a space shuttle No matter the good or service, the supplies of land, labor and capital used to produce it are scarce What do all these have in common?

Alternatives! Each one has an alternative Society has the right to choose which alternates they want the most—the study of economics The study of how society seeks to satisfy their needs and wants by making choices

Drawing on your new knowledge of the definition of economics and our class discussion, answer the following questions: a. Name four things you know about economics. b. How does economics relate to your life? How does it affect your family? c. What role do you play in the economy?