What is Economics? Chapter 1

Basic Definition Study of how people try to fulfill their wants through the use of scarce resources.

Fundamental Problem Scarcity Everyone has this problem Condition that results from society not having enough resources to fulfill everyone’s wants and needs

Need Basic requirement for survival Food, clothing, shelter

Want Not needed for survival Another way of saying you “need” something

TINSTAAFL “There Is No Such Thing As A Free Lunch” Means nothing is free because we have limited resources.

3 Basic ?’s 1.What to Produce? 2.How to Produce? 3.For Whom to Produce?

Factors of Production Land Labor Capital Entrepreneurship

Land Natural resources not created by humans. Ex. Grass, dirt, fields, forests, animals, etc.

Capital Tools, equipment, machinery, and factories used to make goods and services. Can also be money – financial capital

Labor People with all their efforts, abilities, and skills. IOW – People who work or perform a job.

Entrepreneurs A risk-taker in search of profits who does something new with existing resources. Starts a new business or creates a new product.

Production When all 4 factors of production (land, labor, capital, & entrepreneurship) are present. Creates a good or service.

Good An item that is economically useful or satisfies and economic want. Tangible Ex. iPod, stapler, shoes, car, etc.

Service Work that is performed for someone. Intangible Ex. Doctors, Lawyers, Teachers, Cashiers, Mechanic, etc.

Consumer Person who uses goods and services to satisfy their wants and needs.

$$$Value$$$ Worth that can be expressed in dollars and cents.

Paradox of Value Situation where some necessities (ex. Water) are cheap and some luxuries (ex. Diamonds) are expensive.

Problem is that scarcity by itself is not enough to create value.

Utility The capacity to be useful and provide satisfaction. Makes something have true value.

Utility varies from one person to another. What is useful to one person is not useful to someone else.

Wealth Accumulation of products that are tangible, scarce, and transferable from one person to another.

Goods are included in wealth but services are not.

Circular Flow of Economic Activity Diagram showing how wealth flows through the economy.

2 Types of Markets 1.Factor Markets  Markets where resources are bought and sold 2.Product Markets  Markets where producers sell their goods and services to consumers

Economic Growth When a nation’s goods and services increase over time.

Productivity Measure of how much output is produced from how much input is used. One of the things that increases economic growth.

Division of Labor Splitting up work so that workers do fewer tasks than before.

Specialization When factors of production perform tasks more efficiently than others.

Trade-offs Alternative choices Ex: Snickers or Milky Way –Blue Jeans or Khakis –Dinner or a Movie

Opportunity Cost Cost of the next best alternative use of money, time, or resources when one choice is made over another.

Production Possibilities Curve A graph representing all the goods and services that can be produced by a country.

See graph on overhead

Cost-Benefit Analysis Compares the cost of an action to the benefits received. Think about what you’ll get from what you want to do.

See chart on overhead