Chapter 1 What is Economics? Section 1: Scarcity & the Factors of Production

Scarcity & Choice People cannot have everything they need & want People cannot have everything they need & want Need- necessary for survival Need- necessary for survival Want- Not essential Want- Not essential Must consider their options & decide which choice will fill their needs best Must consider their options & decide which choice will fill their needs best

Ex: You must choose how to spend your time Ex: You must choose how to spend your time Businesses must choose how many people to hire Businesses must choose how many people to hire Economics- study of how people seek to satisfy their needs & wants by making choices Economics- study of how people seek to satisfy their needs & wants by making choices

Scarcity Defining scarcity Defining scarcity Implies limited quantities of resources to meet unlimited wants Implies limited quantities of resources to meet unlimited wants No one can have an endless supply of everything No one can have an endless supply of everything Sooner or later a limit is always reached Sooner or later a limit is always reached Economics is about solving the problem of scarcity Economics is about solving the problem of scarcity

Scarcity v. Shortages Shortages occur when producers will not or cannot offer goods & services at the current prices Shortages occur when producers will not or cannot offer goods & services at the current prices Can be short or long term Can be short or long term Caused by wars or droughts Caused by wars or droughts

Scarcity always exists because our needs & wants are always greater than our resource supply Scarcity always exists because our needs & wants are always greater than our resource supply Goods & services are scarce because they are all made from resources that are scarce Goods & services are scarce because they are all made from resources that are scarce

The Factors of Production All of the resources used to make goods & services All of the resources used to make goods & services Land- all natural resources used to produce goods & services Land- all natural resources used to produce goods & services Natural resources- fertile land for farming & products that are found in or on the land (coal, water, trees, etc.) Natural resources- fertile land for farming & products that are found in or on the land (coal, water, trees, etc.)

Labor- effort a person devotes to a task for which that person is paid Labor- effort a person devotes to a task for which that person is paid Capital- any human made resource that is used to produce other goods & service Capital- any human made resource that is used to produce other goods & service

Physical capital- human made objects used to create other goods & services Physical capital- human made objects used to create other goods & services Can save people & companies a great deal of time & money Can save people & companies a great deal of time & money Ex: Buildings & tools Ex: Buildings & tools Buildings help workers do their work by providing protection & space Buildings help workers do their work by providing protection & space Tools help workers produce a good or service Tools help workers produce a good or service

Benefits Benefits Ex: Doing the dishes v. using a dishwasher Ex: Doing the dishes v. using a dishwasher Extra time Extra time More knowledge More knowledge More productivity More productivity

Human capital- knowledge & skills a worker gains through education & experience Human capital- knowledge & skills a worker gains through education & experience

Land Popping Corn Vegetable Oil Labor The human effort needed to pop the corn Capital Corn-Popping Device The factors of popcorn production

Entrepreneurs Leaders who decide how to combine land, labor, & capital resources to create new goods & services Leaders who decide how to combine land, labor, & capital resources to create new goods & services Take risks to develop original ideas, start businesses, create new industries, & fuel economic growth Take risks to develop original ideas, start businesses, create new industries, & fuel economic growth

Scarce resources Supplies of land, labor, & capital used to produce it are scarce & that each resource has many alternative uses Supplies of land, labor, & capital used to produce it are scarce & that each resource has many alternative uses