Welcome to Economics Economics is a required course for graduation. A great economist once said that Economics is “the study of mankind in the ordinary business of life.”

So, what is Economics? Economics is the study of the production, distribution, and consumption of goods and services. But Economics is much more than that.

Why do we always want more? Economists believe in a concept called scarcity. Scarcity is the idea that our resources are limited but our wants and desires are unlimited. Think about it. Twenty dollars can buy many different goods. Is there only one item you want? Or would you like more?

We have so many options but we must choose. We cannot have everything.

Scarcity To think like an Economist, you must always remember that scarcity exists. You may only have ten dollars in your pocket but you can certainly think of a hundred different ways to spend it.

So, how do we choose?

Economics Can Help As we study Economics, we begin to understand that we must make choices. We begin to understand that we cannot have everything we need or want. We begin to understand that with every choice, there is a cost.

If we choose to live near the ocean, we are more likely to experience flooding.

Every Choice Has Its Cost Economists also teach us that every choice we make has its cost. In other words, every time we get something, we give other options that have value to us. There is no such thing as a free lunch.

If we surf the waves, we may break our legs. Even fun activities have costs.

It’s all about making choices and knowing the costs of those choices.

Scarcity and the Factors of Production In this lesson, students will be able to define the following key concepts: Scarcity Economics The Factors of Production Entrepreneur

In a magical world, there is no need for Economics but we live in a world of Scarcity. We need Economics.

Scarcity Scarcity is the realization that our wants and desires are unlimited but the world’s natural resources are limited. In other words, we always want more than we have. We cannot wave a magic wand to get everything we desire.

Wouldn’t it be nice if we could just wave the magic wand and multiply our dollars?

Economics Due to scarcity, we cannot have everything we want or need. Therefore, we have to make choices. Economics is the study of the choices we make.

Which will you choose in a world of limited resources?

The Factors of Production Whenever we make a good (an object) or a service (an action performed), we need the Factors of Production. The Factors of Production are: 1. Land ( Natural Resources) 2. Labor (Paid Workers) 3. Capital (Money and Machines)

Name the Factor of Production addressed in this diagram.

Entrepreneur An entrepreneur is a person who puts together land, labor, and capital to make new businesses, which requires vision and a willingness to accept risk in order to become successful. If your mother opened her own business, she is an entrepreneur. Bill Gates is also an entrepreneur.

Opportunity Cost In this lesson, students will be able to define the following key words and concepts: Trade-offs Opportunity Cost Guns or Butter Thinking at the Margin

Scarcity exists. We have endless desires but limited resources. In Economics, we must choose.

Trade-off A trade-off occurs when we choose one course of action over another. In Economics, we can never have everything we want or need. We must make choices. A woman spends ten dollars buying her lunch at a local restaurant. She cannot use the same ten dollars to buy a book. A trade-off has occurred.

Sometimes a society is more concerned with economic growth than environmental quality.

It’s All About Scarcity! Scarcity exists. Our wants and desires are limitless but our natural resources are limited. We can always want more than we have. As such, we are constantly choosing one course of action over another. We cannot spend ten dollars on a movie ticket and the same ten dollars on a restaurant meal.

Opportunity Cost Whenever we make a decision, we receive one thing but give other things up. If I chose to study tonight for the examination, I cannot go to the party or the movies or walk the dog. The most desirable alternative given up for the decision is the opportunity cost. Think of the opportunity cost as the best course of action of all those things you didn’t get.

Scarcity and opportunity costs affect individuals, businesses, and governments.

Guns or Butter Government officials also must choose where to spend tax dollars. When a government spends more money on the military, it must invariably spend less money on consumer goods like roads and schools. Economists refer to government trade-offs as Guns or Butter.

Thinking at the Margin Sometimes a decision involves whether to add or subtract one additional unit of a resource. After studying many hours, a student might ask herself: “Should I study one more hour?” This question is a question at the margin. Deciding whether to add or subtract one additional unit occurs at the margin. How much value is gained (or subtracted) by adding one more unit of a resource is called marginal utility. Sometimes adding another unit is counterproductive (Beer example)

Production Possibilities Graphs In this lesson, we will examine the various options available to producers. Students will be able to define the following terms: Production Possibilities Graph Efficiency Underutilization Production Possibilities Frontier

Producers have options. Should a farmer grow corn or broccoli?

A Production Possibilities Graph A Production Possibilities Graph shows alternative ways of using a country’s or producer’s resources. If a farmer uses more of his land to grow corn, he has less land for broccoli. Every decision has its cost.

What is the cost of producing more automobiles?

Efficiency An economy is efficient when it uses resources in such a way as to maximize production as well as profit. Why is it important to be efficient?

Underutilization Underutilization and Overutilization are the opposite of efficiency. Underutilization occurs when an economy uses fewer resources than it is capable of using, and doesn’t maximize their potential for production or profit. Overutilization occurs when an economy uses too many resources and overproduces, creating more products than can be sold. This waste of resources eats into profits and is in some ways worse than underutilization.

The Production Possibilities Frontier The point where maximum possible production is found is called the Production possibilities frontier. At the frontier, efficiency is occurring. However, new technology and new ideas can shift the frontier.