1. Chapter 1SectionMain Menu Scarcity and the Factors of Production

2. Chapter 1SectionMain Menu What Is Economics? Economics is the study of how people make choices to satisfy their wants For example: –You must choose how to spend your time –Businesses must choose how many people to hire

3. Chapter 1SectionMain Menu Economics is the social science concerned with the problem of using scarce resources to attain the greatest fulfillment of society’s unlimited wants.

4. Chapter 1SectionMain Menu Scarcity and Shortages Scarcity occurs when there are limited quantities of resources to meet unlimited needs or desires Shortages occur when producers will not or cannot offer goods or services at current prices

5. Chapter 1SectionMain Menu WHICH PICTURE ILLUSTRATES: SHORTAGE SCARCITY

6. Chapter 1SectionMain Menu TINSTAAFL Is it Too Good to Be True???

7. Chapter 1SectionMain Menu TINSTAAFL

8. Chapter 1SectionMain Menu TINSTAAFL

9. Chapter 1SectionMain Menu The Factors of Production Land All natural resources that are used to produce goods and services. Labor Any effort a person devotes to a task for which that person is paid. Capital Any human-made resource that is used to create other goods and services. Entrepreneurship One who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods.

10. Chapter 1SectionMain Menu Opportunity Cost Does every decision you make involve trade-offs?

11. Chapter 1SectionMain Menu Trade-offs and Opportunity Cost Trade-offs are all the alternatives that we give up whenever we choose one course of action over others. The most desirable alternative given up as a result of a decision is known as opportunity cost.

12. Chapter 1SectionMain Menu Trade-offs and Opportunity Costs All economic decisions require us to make choices among alternatives. Trade-offs are all the available alternatives. The opportunity cost is the next-best alternative we give up.

13. Chapter 1SectionMain Menu Thinking at the Margin When you decide how much more or less to do, you are thinking at the margin.

14. Chapter 1SectionMain Menu Efficiency Efficiency means using resources in such a way as to maximize the production of goods and services. An economy producing output levels on the production possibilities frontier is operating efficiently.

15. Chapter 1SectionMain Menu Growth Growth If more resources become available, or if technology improves, an economy can increase its level of output and grow. When this happens, the entire production possibilities curve “shifts to the right.”

16. Chapter 1SectionMain Menu Cost Cost A production possibilities graph shows the cost of producing more of one item.

17. Chapter 1SectionMain Menu 1. People economize. People choose the alternative which seems best to them because it involves the least cost and greatest benefit. 2. All choices involve cost. Cost is the second best choice people give up when they make their best choice.

18. Chapter 1SectionMain Menu 3. People respond to incentives. Incentives are actions or rewards that encourage people to act. When incentives change, people's behavior changes in predictable ways.

19. Chapter 1SectionMain Menu 4. Economics systems influence individual choices and incentives. How people cooperate is governed by written and unwritten rules. As rules change, incentives change and behavior changes.

20. Chapter 1SectionMain Menu Gross domestic product (GDP) is a key measure of a nation’s economic output.Gross domestic product (GDP)

21. Chapter 1SectionMain Menu Section 1-Key Terms Content Vocabulary scarcity economics need want factors of production land capital capital good Academic Vocabulary resource comprehensive labor entrepreneur gross domestic product (GDP)gross domestic product (GDP)

22. Chapter 1SectionMain Menu Section 2-Key Terms Content Vocabulary good consumer goodconsumer good durable good nondurable goodnondurable good service value paradox of valueparadox of value utility wealth market factor market product market economic growth productivity human capital division of labor specialization economic interdependenceeconomic interdependence

23. Chapter 1SectionMain Menu Section 2 Goods, Services, and Consumers Economics is concerned with economic products—goods and services that satisfy our wants and needs. They command a price because they are scarce and useful.

24. Chapter 1SectionMain Menu Section 2 Goods, Services, and Consumers (cont.) There are different economic products that consumers use. –A good is a useful, tangible item.good Capital goods are manufactured goods used to produce other goods and services. –Consumer goodConsumer good –Durable goodDurable good

25. Chapter 1SectionMain Menu Section 2 Goods, Services, and Consumers (cont.) –Nondurable goodNondurable good –Service is a work performed for someone.Service

26. Chapter 1SectionMain Menu Section 2 Which do you consume or indulge in more often? A.Goods B.Services

27. Chapter 1SectionMain Menu Section 2 Value, Utility, and Wealth The value of a good or service depends on its scarcity and utility.

28. Chapter 1SectionMain Menu In economics, value refers to worth that can be expressed in dollars and cents.value Adam Smith, a Scottish social philosopher, came up with the term paradox of value in 1776.paradox of value Value, Utility, and Wealth

29. Chapter 1SectionMain Menu Value, Utility, and Wealth Scarcity by itself does not fully explain how value is determined. For a good or service to have value, it must also have utility, which varies by person.utility

30. Chapter 1SectionMain Menu Value, Utility, and Wealth A nation’s wealth is comprised of all tangible goods.wealth This, however, does not mean that services are not useful or valuable.

31. Chapter 1SectionMain Menu A.A B.B C.C Which of the following has the most value and utility to your family? A.Automobile B.Kitchen appliances C.Television

32. Chapter 1SectionMain Menu The Circular Flow of Economic Activity The economic activity in markets connects individuals and businesses.

33. Chapter 1SectionMain Menu The Circular Flow of Economic Activity The circular flow of economic activity generates wealth. The market is the key to this circular flow.market Individuals earn their incomes in factor markets.factor markets

34. Chapter 1SectionMain Menu The Circular Flow of Economic Activity

35. Chapter 1SectionMain Menu The Circular Flow of Economic Activity After individuals earn their incomes in factor markets, they spend it in product markets.product markets Businesses then use this money to produce more goods and services. This cycle of economic activity repeats.

36. Chapter 1SectionMain Menu Productivity and Economic Growth A nation’s economic growth is due to several factors.

37. Chapter 1SectionMain Menu When the circular flow becomes larger, with more factors of production, goods, and services flowing in one direction and more payments in the opposite direction, there is economic growth.economic growth –Productivity is the most important factor contributing to economic growth.Productivity Productivity and Economic Growth

38. Chapter 1SectionMain Menu Productivity and Economic Growth Ways to increase productivity –Invest in human capital such as education, training, and health-carehuman capital –Division of labor and specializationDivision of laborspecialization

39. Chapter 1SectionMain Menu Effect of Education on Income

40. Chapter 1SectionMain Menu Productivity and Economic Growth The U.S. economy has a remarkable degree of economic interdependence. As a result, events in one part of the world may have a dramatic impact here.economic interdependence

41. Chapter 1SectionMain Menu Section 3-Key Terms trade-off opportunity costopportunity cost production possibilities frontierproduction possibilities frontier economic modeleconomic model cost-benefit analysiscost-benefit analysis free enterprise economyfree enterprise economy alternative assumption standard of livingstandard of living

42. Chapter 1SectionMain Menu Production Possibilities Economies face trade-offs when deciding what goods and services to produce.

43. Chapter 1SectionMain Menu Production Possibilities Economists use the production possibilities frontier to illustrate opportunity cost.production possibilities frontier Production Possibilities Frontier

44. Chapter 1SectionMain Menu Production Possibilities Production Possibilities Frontier

45. Chapter 1SectionMain Menu Production Possibilities Opportunity Cost

46. Chapter 1SectionMain Menu Production Possibilities Economic Growth

47. Chapter 1SectionMain Menu Thinking Like an Economist Economists use a strategy called cost-benefit analysis to evaluate choices.

48. Chapter 1SectionMain Menu Thinking Like an Economist Economists use two strategies: –Building models An economic model is a simplified equation, graph, or figure based on assumptions.economic model –Cost–benefit analysisCost–benefit analysis Investing in projects that give the highest return per dollar spent

49. Chapter 1SectionMain Menu The Road Ahead The study of economics helps people become better citizens.

50. Chapter 1SectionMain Menu The Road Ahead Through studying economics –We get a better understanding of the workings of a free enterprise economy.free enterprise economy –Our standard of living is based on supply and demand, pricing, productivity, property rights, inflation, and economic growth, among other factors.standard of living The Road Ahead

51. Chapter 1SectionMain Menu The Road Ahead –We become better decision makers in our personal lives and in the voting booth. Most of our political problems have important economic aspects. The Road Ahead –Economics helps us understand the complex world around us by providing a framework for analysis.

52. Chapter 1SectionMain Menu Scarcity Because of scarcity, society needs to decide how to distribute limited resources to satisfy seemingly unlimited wants and needs.

53. Chapter 1SectionMain Menu Factors of Production Four factors of production are required to produce the things we would like to have.