1. Chapter 1, Section 1 – The Basic Problem in Economics.

2. Economics – The study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants. Wants vs. Needs – to an economist, everything other than basic survival needs is considered a want. Examples: Wants – new car, new phone, boat, cable tv. Needs - Food, shelter, clothing.

3. How do individuals satisfy their unlimited wants in a world of limited resources? They must do so by making choices. When you only make $20,000/year you have to spend more responsibly. You will have to choose between tonight’s dinner vs. the new Lady Gaga CD that is out. Like individuals businesses must also make choices. They have to decide what to produce now, what to produce tomorrow, and what to stop producing. These choices effect workers by creating/eliminating jobs, increasing/decreasing wages. This is like a trickle down effect.

6. Factors of production 1. 1. Land – natural resources and surface land and water. 2. 2. Labor – human effort directed toward producing goods and services. 3. 3. Capital – previously manufactured goods used to make other goods and services. 4. 4. Entrepreneurship – ability of risk-taking individuals to develop new products and start new businesses in order to make profits. *About 30% of new businesses fail! Goods vs. Services Goods – tangible objects that can satisfy peoples wants or needs Services – actions that can satisfy people’s wants or needs.

7. Productivity – the ability to produce greater quantities of goods and services in better and faster ways. How much faster is a modern combine vs. a farmer’s own hands to pick corn? Technology – advance in knowledge leading to new and improved goods and services and better ways of producing them. Today’s scientists and engineers develop new ways of producing and distributing goods and services.

8. 1. What is economics? 2. What is scarcity? 3. What are the 4 factors of production?