Economics Chapter 1 Section 1

The Fundamental Economic Problem Most people seem to want more stuff Scarcity- the condition that results from society not having enough resources to produce all the things that people would like to have Economics- the study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources

No Free Lunch A need is a basic requirement for survival and includes food, clothing, and shelter A want is a way of expressing a need, the range of the things represented by the term want is much broader- exp. Food Because of limited resources basically everything we do has a cost “free” items usually come with a catch

3 basic questions What to produce? Military equipment, food, clothing, housing, or surfboards? A society cannot have everything its people want, so decisions must be made How should you produce the stuff? Lots of equipment and a few laborers, lots of laborers and less equipment? Production cost Vs. Jobs

3 basic questions For whom to produce the goods Should the goods be distributed to the workers, professional people, or government employees? How does a society decide these three major questions?

Factors of production Factors of production- resources required to produce the things we would like to have- land, capital, labor, and entrepreneurs Land- refers to the “gifts of nature” or natural resources not created by humans- fertile fields, forests, mineral deposits, livestock, and sunshine Because only so much can be available at any given time, this tends to be though of as being fixed, or in limited supply

Capital Capital- the tools, equipment, machinery, and factories used in the production of goods and services They are called capital goods to distinguish them from financial capital- the money used to buy the tools and equipment used in production Capital is unique in that it is the result of production- exp. Bulldozer, cash register

Labor Labor- people with all their efforts, abilities and skills. Includes all people except entrepreneurs. This resource may vary in size over time- factors such as population growth, immigration, famine, war, and disease impact the quantity and quality of labor

Entrepreneurs Entrepreneurs- a risk taker in search of profits who does something new with existing resource Exhibit the ability to start new businesses or bring new products to the market Production- the process of creating goods and services must have all of the factors of production Even at schools

Scope of Economics 4 key elements to the study of economics: description, analysis, explanation, and prediction Description of economic activity Gross Domestic Product (GDP)- the dollar value of all final goods and services, and structures produced, within a countries borders in a 12- month period Also concerned with what is produced, who gets how much, as well as unemployment, inflation, international trade, interaction of business and labor and gov’t spending and taxes

Analysis Why are the prices for some items high and others low? Why are some incomes higher then others? How do taxes effect people’s desire to work and save? Analysis helps us to discover why things work and how things happen

Explanation If we all have a common understanding of the way our economy works, some economic problems will be much easier to address or even fix in the future Prediction- people will want to know if their incomes will rise or fall in the future, affecting their spending habits in the marketplace Or trying to choose between higher taxes on homeowners or higher taxes on businesses

Prediction Economics deals with the study of what is or what tends to be, it can help predict what may happen in the future, as well as the likely consequences of different courses of action The actual decisions about the economic choices to be made are the responsibility of all citizens in a free and democratic society