Chapter 1 What is Economics? Section 1: Scarcity & the Factors of Production

Scarcity & Choice People cannot have everything they need & want Need- necessary for survival Want- Not essential Must consider their options & decide which choice will fill their needs best

Ex: You must choose how to spend your time Businesses must choose how many people to hire Economics- study of how people seek to satisfy their needs & wants by making choices

Scarcity Defining scarcity Implies limited quantities of resources to meet unlimited wants No one can have an endless supply of everything Sooner or later a limit is always reached Economics is about solving the problem of scarcity

Scarcity v. Shortages Shortages occur when producers will not or cannot offer goods & services at the current prices Can be short or long term Caused by wars or droughts

Scarcity always exists because our needs & wants are always greater than our resource supply Goods & services are scarce because they are all made from resources that are scarce

The Factors of Production All of the resources used to make goods & services Land- all natural resources used to produce goods & services Natural resources- fertile land for farming & products that are found in or on the land (coal, water, trees, etc.)

Labor- effort a person devotes to a task for which that person is paid Capital- any human made resource that is used to produce other goods & service

Physical capital- human made objects used to create other goods & services Can save people & companies a great deal of time & money Ex: Buildings & tools Buildings help workers do their work by providing protection & space Tools help workers produce a good or service

Benefits Ex: Doing the dishes v. using a dishwasher Extra time More knowledge More productivity

Human capital- knowledge & skills a worker gains through education & experience

Entrepreneurs Leaders who decide how to combine land, labor, & capital resources to create new goods & services Take risks to develop original ideas, start businesses, create new industries, & fuel economic growth

Scarce resources Supplies of land, labor, & capital used to produce it are scarce & that each resource has many alternative uses