Chapter 1 The Economic Way of Thinking Section 1 The Basic Economic Problem

Chapter 1: The Economic Way of Thinking KEY CONCEPT Scarcity is the situation that exists because wants are unlimited and resources are limited. WHY THE CONCEPT MATTERS The concept of scarcity is an issue you confront in everyday life. Suppose you have $20 to cover the cost of lunches for the week. How would you use the money to cover your wants Monday through Friday? How would buying a late afternoon snack for $1 on two of the days affect your lunch choices?

Scarcity: The Basic Economic Problem Section-1 Scarcity: The Basic Economic Problem What Is Scarcity? KEY CONCEPTS Wants — desires that can be met by consuming products Needs — things necessary for survival Scarcity — lack of resources available to meet all human wants not a temporary shortage Economics — study of how people use resources to satisfy wants — examines how individuals and societies choose to use resources — organizes, analyzes, interprets data about economic behaviors — develops theories, economic laws to explain economy, predict future

What Is Scarcity? Principle 2: Scarcity Affects Everyone Principle 1: People Have Wants People make choices about all their needs and wants Wants are unlimited, ever changing Principle 2: Scarcity Affects Everyone Scarcity affects which goods and services are provided Goods — physical objects that can be bought Services — work one person does for another for pay Consumer — person who buys good or service for personal use Producer — person who makes a good or provides a service

Scarcity Leads to Three Economic Questions KEY CONCEPTS Scarcity affects society and producers as well as individuals Society must answer three basic economic questions: — what will be produced? — how will it be produced? — for whom will it be produced?

Scarcity Leads to Three Economic Questions Question 1: What Will Be Produced? Societies must decide on mix of goods to produce — depends in part on their natural resources Some countries allow producers and consumers to decide In other countries, governments decide Must also decide how much to produce; choice depends on societies’ wants Question 2: How Will It Be Produced? Decisions on production methods involve using resources efficiently — decisions influenced by a society’s natural resources Societies adopt different approaches — with unskilled labor force, might use labor-intensive methods — with skilled labor force, might use capital-intensive methods Question 3: For Whom Will It Be Produced? How goods and services are distributed involves two questions — how should each person’s share be determined? — how will goods and services be delivered to people?

The Factors of Production KEY CONCEPTS Factors of production — resources needed to produce goods and services — include land, labor, capital, entrepreneurship — supply is limited

The Factors of Production Factor 1: Land Land means all natural resources on or under the ground — includes water, forests, wildlife, mineral deposits Factor 2: Labor Labor is all the human time, effort, talent used to make products — physical and mental effort used to make a good or provide a service Factor 3: Capital Capital is a producer’s physical resources — includes tools, machines, offices, stores, roads, vehicles — sometimes called physical capital or real capital Workers invest in human capital — knowledge and skills — workers with more human capital are more productive Factor 4: Entrepreneurship Entrepreneurship — vision, skill, ingenuity, willingness to take risks Entrepreneurs anticipate consumer wants, satisfy these in new ways — develop new products, methods of production, marketing or distributing — risk time, energy, creativity, money to make a profit

desires that can be met by consuming products Needs Vocabulary Wants desires that can be met by consuming products Needs Things necessary for survival Scarcity lack of resources available to meet all human wants Economics study of how people use resources to satisfy wants Good physical objects that can be bought Services work one person does for another for pay Consumer person who buys good or service for personal use Producer person who makes a good or provides a service Factors of Production include land, labor, capital, entrepreneurship Land means all natural resources on or under the ground

Vocabulary Labor Capital Entrepreneurship All the human time, effort, talent used to make products Capital A producer’s physical resources Entrepreneurship vision, skill, ingenuity, willingness to take risks