Unit 1: Fundamental Economic Concepts Chapter 1: What Is Economics?

Chapter 1: What Is Economics? Economics is 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.

Chapter 1: What Is Economics? Scarcity is the condition that results from society not having enough resources to produce all the things people would like to have. Need is a basic requirement for survival and includes food, clothing, and shelter. Want is a way of expressing a need.

Chapter 1: What Is Economics? TINSTAAFL “There Is No Such Thing As A Free Lunch” – resources are limited, virtually everything we do has a cost, even when it seems as if we are getting something for free.

Chapter 1: What Is Economics? 3 Basic Questions every society must answer 1. What to produce? 2. How to produce? 3. For whom to produce?

Chapter 1: What Is Economics? Factors of Production – resources required to produce the things we would like to have. 1. Land 2. Capital (money and machinery) 3. Labor 4. Entrepreneurs

Chapter 1: What Is Economics? Trade Offs and Opportunity Costs Trade Offs – alternative choices Opportunity Costs – the costs of the next best alternative use of money, time, or resources when one choice is made rather than another → the opportunity cost is the product(s) you gave up. ** Even time has an opportunity cost → you take an economics class. Your opportunity cost is the other classes you could have taken at the same time period.

Chapter 1: What Is Economics? We can see trade offs and opportunity costs by constructing a decision-making grid. Lets say you have $50.00. How do you spend it?

Chapter 1: What Is Economics? Decision-Making Grid Alternatives Costs $50 or Less Durable? Will Parents Approve? Future Expenses Unnecessary? Can Use Anytime? Several CDs Yes yes No Concert Tickets CD Player Soccer Ball Jeans

Chapter 1: What Is Economics? Economic Products are goods and services that are useful, relatively scarce, and transferable to others. Goods are an item that is economically useful or satisfies an economic want. Consumer Good is intended for final use by individuals. Capital Good is when manufactured goods are used to produce other goods and services they are called capital goods.

Chapter 1: What Is Economics? Service is work that is performed for someone. Consumer is a person who uses goods and services to satisfy wants and needs. Value refers to a worth that can be expressed in dollars and cents. **Scarcity is required to have value. Utility – in order for something to have value, it must also have utility or the capacity to be useful and provide satisfaction.

Chapter 1: What Is Economics? Durable Good is any good that lasts 3 years or more when used on a regular basis (consumer and capital goods). Non-Durable Good is an item that lasts less than 3 years when used on a regular basis.

Chapter 1: What Is Economics? Paradox of Value is the situation where some necessities, such as water, have little monetary value, whereas some non-necessities, such as diamonds, have a much higher value. Economic Growth occurs when a nation’s total output of goods and services increases over time.

Chapter 1: What Is Economics? Productivity is a measure of the amount of output produced by a given amount of inputs in a specific period of time. Productivity goes up whenever more output can be produced with the same amount of inputs in the same amount of time. ** Is usually applied to labor, but applies to all factors of production. Division Of Labor takes place when work is arranged so that individual workers do fewer tasks than before → assembly lines

Chapter 1: What Is Economics? Specialization takes place when factors of production perform tasks that they can do relatively more efficiently than others. Human Capital is the sum of the skills, abilities, health, and motivation of people. Economic Interdependence means that we rely on others, and others rely on us, to provide the goods and services that we consume.

Chapter 1: What Is Economics? The End