INTRODUCTION TO ECONOMICS

But Mom, I NEED It!! What is the difference between a WANT and a NEED? A need is something essential to survival; the basic necessities of life. Ex. Air, Water, Food, Clothing, Shelter A want is something that we desire, but is not essential for our survival; extras that make like more pleasant. Ex. Cell Phones, Television, Cars, iPods Because our resources are limited, people must often make choices between needs and wants.

What is Economics? Economics - The study of how people choose to satisfy their needs and wants in a world of limited resources. Microeconomics: The study of the behavior and decision making of individuals, families and businesses (small scale) Macroeconomics: The study of the behavior and decision making trends of entire economies (large scale)

What is Scarcity? Scarcity - A limited quantity of resources to meet unlimited needs and wants. Scarcity ALWAYS exists because resources are always limited. Scarcity v. Shortages A shortage occurs when a good or service is unavailable Shortages can be temporary or long-term and can be caused by price fluctuations, wars or drought.

Classifying Resources The resources used to make all goods and services are called the factors of production. They are: Land: All materials found in nature (natural resources). Ex. Land, water, trees, coal, oil Labor: The effort a person devotes to a task for which he/she is paid. Ex. When you are paid an hourly wage for working, you are being paid for your labor.

Classifying Resources cont. Capital - Any human made resource that is used to produce other goods and services. There are two types of capital: Physical Capital: Human made objects that can be used to create other goods and services Ex. Buildings, equipment, tools Human Capital: The knowledge and skills a person gains through education and experience

Making Decisions Trade-Offs: An alternative that we sacrifice when we make a decision. All human decisions involve trade-offs. Individuals Businesses Societies Guns or Butter?

Opportunity Costs Opportunity Cost: The most desirable alternative given up as the result of a decision. Your second choice. Whenever we make a decision, we face an opportunity cost;

THINK ABOUT IT! Explain the difference between an opportunity cost and a trade off. Read pg. 19, “Safety at Any Cost?” and answer the questions at the bottom of the page.