What is Economics? Chapter 1.1

What is Economics? (textbook) The study of people producing and exchanging to get the things they want. The study of how individuals and societies make choices about ways to use scarce resources to fulfill their wants.

What is Economics? (real life) Economics is a tool Economics is NOT about money Economics is benefit/cost analysis If you can weigh the benefits and costs of alternative choices, you can do economics!

What is Scarcity? (textbook) The inability to satisfy all of everybody’s wants. Trying to meet unlimited wants with limited resources.

What is Scarcity? (real life) Scarcity is the reason we need economic systems (more to be revealed) Cookie Monster! “We always come back for more” Scarcity leads to trade-offs Trade-offs lead to opportunity costs

Scarce Resources Factors of Production Resources of land, labor, capital and entrepreneurship used to produce goods and services

Factors of Production Land/Natural Resources Labor/Human Capital Natural resources and surface land and water Labor/Human Capital Human effort directed toward production goods and services Capital Previously manufactured goods used to make other goods and services Entrepreneurship Individuals who take risks to develop new products and start new businesses

Scarcity and rationing Because things are scarce, we must ration What different kinds of rationing are there? CD’s Concert wrist bands DECA Trophy Transplant organs

Costs vs. Price Price is not the only cost of something What are some other costs? Cost is what we give up Price is merely a rationing tool

Important Facts about Costs Your cost is not my cost All costs are subjective “Things” don’t have cost until you “decide” to use them All costs are in the future Costs in the past are sunk—get over it! Only a small portion of costs are monetary