Sections 1 & 2 The Basic Problem in Economics & Trade-Offs Chapter 1 Sections 1 & 2 The Basic Problem in Economics & Trade-Offs

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Economics Study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants.

2 Branches of Economics Microeconomics – Behavior and decision making (small scale) – Individuals & Firms Macroeconomics – Economy as a whole (large scale) – Ex. The US Economy, Major Industries

Basics Wants (Don’t have to have) Needs (Must have to survive) Scarcity Not enough resources available for everyone’s unlimited wants – Must make choices Even if everyone was rich there is still scarcity Shortages and scarcity are NOT the same

4 Factors of Production Resources used to produce goods and services. Land – Natural resources Labor – Work people do

Cont. Capital – Manufactured goods used to produce other goods and services. Entrepreneurship – Individual who starts new businesses, or improve products, service, techniques.

Distribution of (4 factors of production) How much of each factor of production you have determines wealth Nations with more natural resources are wealthier. Individuals who can offer more or better labor earn more. Good entrepreneurs are typically more wealthy than those who aren’t. Those who can do jobs that require extreme intelligence are in short supply and therefore make more money.

Trade-Offs Sacrificing one good or service to produce or purchase another. Opportunity Cost – Value of the next best alternative that was given up for what was chosen. Ex. If you have a job that requires you to work after school your opportunity cost is what you could have done instead (play a school sport perhaps)

Production Possibilities Curve PPC – Graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time. Production Possibilities Curve can help show trade-offs and opportunity cost Other factors sometimes need to be considered. How long it takes to make a switch Future outlook Benefits received or lack there of for government goods and services.

Consumer Vehicles Military Supplies