1. Economic Decision Making Why can’t we always get what we want?

2. Why is what we want Scarce? We can’t get everything we want because there is a limited amount of resources to fulfill our wants.

3. Why is what we want Scarce? All goods (physical objects) and services (activities provided by others) are scarce because the resources needed to produce them are scarce.

4. Why is what we want Scarce? Scarcity and shortage are not the same. A shortage is a temporary condition that occurs when there is less of a good or service available than people want at the current price.

5. Why is what we want Scarce? Since NO resource has an unlimited supply, scarcity exists all the time. Shortage is a temporary condition, like shortage of building materials after a hurricane.

6. How do we satisfy Economic Wants? The resources that go into making goods and services are called Factors of Production. Land + Labor + Capital = Goods & Services

7. How do we satisfy Economic Wants? Land resources – Gifts of Nature; air, soil, minerals, water, plants.

8. How do we satisfy Economic Wants? Labor resources – physical and mental activities that go into producing goods and services.

9. How do we satisfy Economic Wants? Capital resources – include the tools, machines, buildings, and technologies that are used in the production of goods and services.

10. How do we satisfy Economic Wants? Entrepreneurs – Combine land, labor, and capital to produce goods and services. They often supply vision, take risks, and provide the drive needed to turn ideas into realities.

11. What do we Give Up When We Make a Choice? People seek to maximize their utility (satisfaction or benefit) when making decisions. Making the most satisfying or beneficial decision means tradeoffs (alternatives among choices) must be considered.

12. What do we Give Up When We Make a Choice? Opportunity Cost – the cost of a decision, it is the next best alternative, it is what we “loose when we choose.”

13. What do we Give Up When We Make a Choice? Marginal Utility – The EXTRA satisfaction one gains from one additional unit. Example: Two cookies make me slightly more happy than one cookie does. +=

14. What do we Give Up When We Make a Choice? Diminishing Marginal Utility – As we get more and more of something, the pleasure we get from the item decreases.

15. How Can We Measure What We Gain and Lose When Making Choices? Productivity – a measure of the output of a system.