The Basic Problem of Economics 1/1 The Basic Problem of Economics

Economics Study of how people, societies, businesses use limited resources to fill unlimited wants

Needs vs. Wants (Make Choices) Need- food, clothing, shelter Want- anything not needed for survival (car, CD player)

Choices Each choice competes with all others. Individuals, businesses, societies must make choices.

Problem of Scarcity Everything is limited, so there’s a fixed amount of resources. People have competing uses for resources. Scarcity: people can’t have enough time, income, etc. to satisfy all their needs. Scarcity is NOT shortages

Factors of Production Resources needed to produce goods and services.

Factors of Production 1. Land: natural resources (land, water, fish, forests, petroleum…) 2. Labor: anyone who produces a good or service, and the work itself. (Goods- tangible things people buy. Services- activities done for a fee.)

Factors of Production 3. Capital- manufactured goods used to make other goods and services. (Factories, trucks, machines, buildings…) Entrepreneurship- ability to start new businesses, introduce new products and services. Hope to make $$$! Technology- using land, labor, capital to produce goods/services more efficiently

Wealth Determined by how much of the factors of production you have. A nation’s wealth- determined by the distribution of the factors of production.