{ WHAT IS ECONOMICS? Chapter 1 Section 1, 2, and 3

Scope of Economics - Study of human efforts to satisfy what appear to be unlimited and competing wants through the careful use of relatively scarce resources -unemployment, inflation, international trade, interactions of businesses and labor, taxes, government spending, interactions of different economies, how businesses and business owners think and work -anticipating the likely outcome and consequences

TINSTAAFL There’s No Such Thing As A Free Lunch Someone has to pay Maybe raise prices and then send out coupons Customers will come back later and purchase more items Someone HAS to pay for production and it’s not going to be the company

Scarcity -Fundamental Economic Problem -We don’t got enough!! -Not because there is not enough money -Lack of resources needed to make all the things people want

Factors of Production Also known as resources 1. Land “gifts of nature” In limited supply 2. Capital Tools, equipment, and factories used in production Ex. Bulldozer for a construction company Ex. Cash register for a grocery store 3. Labor People Vary in size 4. Entrepreneurs Risk-taker in search of profits Create new products

Three Basic Questions To provide for the needs of its people, one must ask: 1. What to produce 2. How to produce 3. For whom to produce

Trade- offs -Decision making! -Alternative Choices because we can’t have everything we want -due to lack on money or time -forces you to consider alternatives -Budgeting -P.20 Figure 1.5 Decision Making grid

Opportunity Cost Cost of the next best choice Ex. Your friend had a chance to earn $50 for a morning’s work but ended up oversleeping because the alarm never went off. What’s the opportunity cost?

Need v. Want -Need = you gotta have it! -Want = you think you gotta have it! Ex. Food is a requirement to live -However one could want pizza or want chicken wings -But you should stay at home and eat a grilled cheese -Grilled cheese meets the need, but not the want -Want is much broader than need

Goods, Services, and Consumers Goods What people desire 1. Free products ex. Air, sunshine 2. Economic product are scarce and transferable 3. Good- tangible commodity -consumer good v. capital good, -durable v. nondurable -magic number 3 years

Goods, Services, and Consumers Services Work performed by someone else Cannot be touched or felt Consumers Me and you!

Value -Why do something's have more value than others? -Paradox of Value -Diamond-water paradox -SCARCITY! Not by itself -Utility must also be there -capacity to be useful -not fixed or measured Value = Scarcity + Utility

Productivity -Output increases while the input remains the same -Scarcity forces productivity to be a key factor -Specialization or division of labor ex. building a house

Economic Interdependence Everyone and everything is connected Figure on p Circular Flow of Economic Activity

Review Questions Answer on your own sheet of paper and turn in before you leave. You can use your notes. 1. Describe the fundamental economic problem. 2. List 3 basic economic questions every society must answer. 3. Explain the advantages of using a decision making grid to evaluate alternatives.