The Fundamental Economic Problem Unit 1, Day 1

Opener 8/29/17 Copy the definitions Economics-the study of how we make decisions in a world where resources are limited. Scarcity - we do not have enough resources to produce all the things we would like to have. Economic models. -simplified representations of the real world, based on economic theories.

Economic Choices Economics is the study of how we make decisions in a world where resources are limited. It is sometimes called the science of decision making. Needs are things we need for survival, such as food, clothing, and shelter. Wants are things we would like to have.

Economic Choices Individually, create a list on the bottom of your notes that reflects the two following statements: Things I need to live include: Things I want include:

Economic Choices The fundamental economic problem is scarcity–we do not have enough resources to produce all the things we would like to have. Because of scarcity, we must make choices among alternatives.

Economic Choices Analyze the above cartoon illustrated by Jerry Scott and Jim Borgman in 1998. Finally, include a reflection on the following: Luxuries such as concert tickets often become necessities in the eyes of consumers. How do consumers satisfy their seemingly unlimited wants?

Economic Choices There are three basic economic questions that a society must answer: Society must decide what to produce with its limited resources. For example, society may have to choose whether to produce goods for defense or services for poor people. Society must decide how to produce. For example, should we accept more pollution from factories in exchange for greater output of products?

Economic Choices Society must decide for whom to produce. Who will receive the goods and services? In the United States, most goods and services are distributed through the price system.

Using Economic Models The economy includes all the activity in a nation that together affects the production, distribution, and use of goods and services. Production Consumption Distribution

Using Economic Models To study a part of the economy, economists use economic models. These are simplified representations of the real world, based on economic theories. Business and government often base decisions on solutions that emerge from testing economic models.

Using Economic Models Models are based on assumptions. The quality of the model’s results can be no better than the assumptions on which it is based. Economists use models to better understand the past or present and to predict the future. If predictions based on a model turn out to be wrong, economists revise the model.

Exit Slip Using complete sentences answer this question What would life be like if no economic scarcity existed?