Economics 1. What is economics?

It is the study of how people make decisions in a world where resources are limited: the science of decision making.

2. People have needs that are required for survival such as:

Food Clothing Shelter

3. People also have many wants: things that make life for comfortable. Such as:

Entertainment Vacations

4. The basic economic problem is: SCARCITY

When there are not enough resources to produce all the things people would like to have.

Because of scarcity, society must make three economic decisions: 1) What to produce?

2) How should goods and services be produced?

3) For Whom should they be produced?

Goods: tangible items such as - shoes cars roads

Services: what people DO for someone in exchange for something of value. Such as:

mechanic maid

Resources: 1. Natural Resources: come from the earth: water

soiltrees minerals

2. Human resources: Skills Knowledge

energy Physical capabilities

What should be produced? During wartime metal may be used for weapons instead of pots and pans.

Farmers may be used as soldiers resulting in less food production.

2. How should they be produced? Which natural resources should be used to build a road?

dirtcement gravel

Should we allow more pollution in exchange for greater output and cheaper prices?

3. For whom to produce? This deals with the distribution of goods and services.

In the U.S. people who make the most money are able to buy the most goods and services.

Choices involve trade-offs: Exchange one thing for the use of another. Pots & pans/ tanks Farmers/ soldiers Clean air/ cheap prices

Opportunity cost – The next best alternative you had to give up for a choice you made. skiing home work concert

To make economic decisions, people have to take into account all the costs and benefits of an action.