Economics--The study of human efforts to satisfy unlimited and competing wants through the use of limited and scarce resources. Economics was created as a social science by Adam Smith in the 1700’s.

*Smith wrote a book in 1776 called The Wealth of Nations. -believed economics worked according to natural law. -believed division of labor was the key to increased productivity. -believed the economy would prosper when the people were free to make decisions about what to buy and produce.

*Economic system where the means of production are privately owned. Capitalism *Economic system where the means of production are privately owned. (Private ownership of property)

9 Components of Capitalism 1. Free enterprise 2. Privately owned businesses 3. Freedom 4. Voluntary Exchange 5. Very Little Gov’t Intervention Consumer Sovereignty Competition Variety Low Price

Profit Motive--the driving force that motivates people to improve their well-being Importance of Profit Motive 1. Keeps people working 2. Keeps companies looking to lower production costs while improving quality.

Products--Things that have usefulness in satisfying wants. Goods (Tangible) Services (Intangible)

True or False. Goods and services must be legal and/or socially desirable to be considered as an actual product.

Goods and services do NOT have to be socially desirable or even legal to be considered as a product. Examples -drugs -gambling -prostitution

5 Factors of Production 1. Land--anything existing w/out human effort. 2. Labor--human resources. 3. Capital--anything used to run a business.

**The factors of production are used to create products. 4. Entreprenuership--person who is willing to take the risk to start a business. 5. Technology--makes a business run more efficiently. **The factors of production are used to create products.