Section 1 Wants, Needs, and Choices The basic problem in economics is how to satisfy unlimited wants with limited resources.

Section 1 Wants, Needs, and Choices (cont.) Economics the study of how people make choices about ways to use limited resources to fulfill their wantsEconomics

Economics is divided into two parts: –Microeconomics – branch of economic theory dealing with behavior & decision making by small units (individuals & firms)Microeconomics –Macroeconomics -- dealing with the economy as a whole and decision making by large units (governments)Macroeconomics

Section 1 Wants, Needs, and Choices (cont.) To economists, anything other than what people need for basic survival is a want. Wants & Needs How societies make choices about the utilization of their resources is the focus of economics.

Section 1 The Problem of Scarcity Scarcity exists because people’s incomes and time are limited.

Section 1 The Problem of Scarcity (cont.) Choices arise because everything that exists is limited. At the same time, people have competing uses for the available resources resulting in scarcity.scarcity scarcity: basic economic problem that results from a combination of limited resources and unlimited wants Shortages are temporary, whereas scarcity is permanent.

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Section 1 The Factors of Production Scarce resources require choices about uses of the factors of production: land, labor, capital, and entrepreneurship.

Section 1 The Factors of Production (cont.) When economists talk about scarce resources, they are referring to the factors of production:factors of production Create a foldable –Land –Labor –Capital –Entrepreneurship

–Land: all natural resources, surface land & water (land, water, fish, animals, trees, and mineral deposits)Land –Labor : (human resources) the work people do to produce goods and services.Laborgoods services –goods: tangible objects that satisfy people’s wants or needs (can touch them) –services: actions that can satisfy people’s wants or needs The Factors of Production (cont.)

–Capital: previously manufactured goods used to make other goods and services (machines, buildings & tools)Capital –When combined with land and labor, increases the value of all three factors and increases productivityproductivity –Productivity the amount of output (goods and services) that results from a given level of inputs (land, labor, capital, and entrepreneurship)Productivity The Factors of Production (cont.)

Section 1 The Factors of Production (cont.) –Technology (sometimes added to the list of factors of production) uses science to more efficiently use land, labor and capital.Technology –Entrepreneurship is individuals taking risks to start new businesses.Entrepreneurship How much of each of these factors of production an individual has determines his or her wealth.

Activity– Economic Decision Making and the Factors of Projection

Section 2 Trade-Offs (cont.) The economic choices people make involve trade-offs (sacrificing one good or service to purchase or produce another)trade-offs The cost of a trade-off is what you give up in order to get or do something else. Economists call the value of the next best alternative or trade-off, opportunity cost (2 nd choice)opportunity cost View: What’s the Difference Between a Trade-Off and an Opportunity Cost?What’s the Difference Between a Trade-Off and an Opportunity Cost?

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Section 2 Production Possibilities Curve A production possibilities curve shows the maximum combinations of goods and services that can be produced with a given amount of resources.

Section 2 Production Possibilities Curve (cont.) A production possibilities curve can help determine how much of each item to produce, thus revealing the trade-offs and opportunity costs involved in each decision.production possibilities curve graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time View: A Production Possibilities CurveA Production Possibilities Curve View: Production Possibilities—Guns vs. ButterProduction Possibilities—Guns vs. Butter

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Section 3 Economic Models (cont.) Economists study the ways individuals, businesses and nations use their limited resources. Economy is the production and distribution of goods and services in a societyEconomy