1. Splash Screen

2. Section 1: Scarcity and the Science of Economics
Chapter Introduction
Section 1: Scarcity and the Science of Economics
Section 2: Basic Economic Concepts
Section 3: Economic Choices and Decision Making
Visual Summary
Chapter Menu

3. Scarcity is the basic economic problem that requires people to make careful choices about how to use limited resources.
Chapter Intro 2

4. Section Preview Section Objectives:
In this section, you will learn why scarcity is the basic economic problem that faces every society and why scarcity requires us to make choices.
Section Objectives:
Students will be able to:
Describe and give examples of the fundamental economic problem.
Identify the 3 basic economic questions facing all societies.
Identify and give examples of the factors of production.
Identify the four key elements/parts of economics.
Section 1-Preview

5. If the only pizza restaurant in the area produced 40 pizzas a night and usually sold out quickly, would you be willing to pay more to guarantee that you would get a pizza?
A. Definitely
B. Possibly
C. Definitely not A B C
Section 1

6. The Fundamental Economic Problem
Societies do not have enough productive resources to satisfy everyone’s wants and needs.
Section 1

7. The Fundamental Economic Problem (cont.)
The fundamental economic problem facing all societies is that of scarcity.
Few people are satisfied with the things they have.
Society does not have enough resources to produce all the things people would like.
Scarcity
Section 1

8. The Fundamental Economic Problem (cont.)
The study of how scarcity affects most decisions we make is economics.
Economists talk about people’s needs and wants. A need is necessary for survival.
A want is something we would like but not necessary for survival.
Section 1

9. The Fundamental Economic Problem (cont.)
Everything we do has a cost, due to limited resources.
TINSTAAFL—There is no such thing as a free lunch.
Section 1

10. Three Basic Questions
Scarcity forces every society to answer the basic questions of WHAT, HOW, and FOR WHOM to produce.
Section 1

11. Three Basic Questions (cont.)
We live in a world of scarce resources. Scarcity means that three questions should be answered.
What to produce
How to produce
For whom to produce
Section 1

12. The Factors of Production
Four factors of production—land, capital, labor, and entrepreneurs—must be present to produce goods and services.
Section 1

13. The Factors of Production (cont.)
All four factors of production are required to produce goods and services.
Land
Capital (sometimes called capital goods)
Labor
Entrepreneurs
The Global Economy & YOU
Section 1

14. Which of these do you think is the most important factor of production
Which of these do you think is the most important factor of production? Why?
A. Land
B. Capital
C. Entrepreneurs A B C
Section 1

15. The Scope of Economics
Economics analyzes how societies satisfy wants through careful use of relatively scarce resources.
Section 1

16. The Scope of Economics (cont.)
Economics is a social science—it deals with the behavior of individuals as they satisfy unlimited and competing wants through careful use of scarce resources.
Section 1

17. The Scope of Economics (cont.)
Four key elements to the study of economics
Description
Gross domestic product (GDP) is a key measure of a nation’s economic output.
Analysis
Explanation
Prediction
Section 1

18. Section Objectives Students will be able to:
Describe and give examples of the fundamental economic problem.
Identify the 3 basic economic questions facing all societies.
Identify and give examples of the factors of production.
Identify the four key elements/parts of economics.
Section 1-Preview

19. Section 1-End

20. Section Preview Section Objectives
In this section, you will learn about some key economic terms and concepts.
Section Objectives
Students will be able to:
Describe and give examples of the different types of goods and services.
Identify the concepts of wealth, value, and utility.
Identify and give examples of the different elements of the Circular Flow model.
Identify the key elements of productivity and economic growth.
Section 2-Preview

21. Goods, Services, and Consumers
Economic products are goods or services that are useful, relatively scarce, and transferable.
Section 2

22. Goods, Services, and Consumers (cont.)
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.
Section 2

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

24. Goods, Services, and Consumers (cont.)
Nondurable good
Service is a work performed for someone.
Section 2

25. Value, Utility, and Wealth
The value of a good or service depends on its scarcity and utility.
Section 2

26. Value, Utility, and Wealth (cont.)
In economics, value refers to worth that can be expressed in dollars and cents.
Adam Smith, a Scottish social philosopher, came up with the term paradox of value in 1776.
Section 2

27. Value, Utility, and Wealth (cont.)
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.
Section 2

28. Value, Utility, and Wealth (cont.)
A nation’s wealth is comprised of all tangible goods.
This, however, does not mean that services are not useful or valuable.
Section 2

29. The Circular Flow of Economic Activity
The economic activity in markets connects individuals and businesses.
Section 2

30. The Circular Flow of Economic Activity (cont.)
The circular flow of economic activity generates wealth.
The market is the key to this circular flow.
Individuals earn their incomes in factor markets.
The Circular Flow of Economic Activity
Section 2

31. The Circular Flow of Economic Activity (cont.)
After individuals earn their incomes in factor markets, they spend it in product markets.
Businesses then use this money to produce more goods and services.
This cycle of economic activity repeats.
Section 2

32. Productivity and Economic Growth
A nation’s economic growth is due to several factors.
Section 2

33. Productivity and Economic Growth (cont.)
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.
Productivity is the most important factor contributing to economic growth.
Section 2

34. Productivity and Economic Growth (cont.)
Ways to increase productivity
Invest in human capital such as education, training, and health-care
Division of labor and specialization
Profiles in Economics: Adam Smith
Effect of Education
on Income
Section 2

35. Productivity and Economic Growth (cont.)
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.
Section 2

36. Section Objectives Students will be able to:
Describe and give examples of the different types of goods and services.
Identify the concepts of wealth, value, and utility.
Identify and give examples of the different elements of the Circular Flow model.
Identify the key elements of productivity and economic growth.
Section 2-Preview

37. Section 2-End

38. Section Preview Section Objectives
In this section, you will learn that you face trade-offs and opportunity costs whenever you make an economic decision.
Section Objectives
Students will be able to:
Identify and describe trade offs and opportunity costs.
Describe how a Decision Making Grid works.
Describe how the PPF demonstrates both opportunity cost and economic growth..
Identify and describe the Production Possibilities Frontier model.
Section 3-Preview

39. Trade-Offs and Opportunity Cost
Economic choices involve trade-offs and the careful evaluation of opportunity costs.
Section 3

40. Trade-Offs and Opportunity Cost (cont.)
There are alternatives and costs to everything we do.
Every decision has trade-offs.
Jesse’s Decision-Making Grid
Section 3

41. Trade-Offs and Opportunity Cost (cont.)
Similarly, each decision has an opportunity cost.
Even time has an opportunity cost.
Section 3

42. Production Possibilities
Economies face trade-offs when deciding what goods and services to produce.
Section 3

43. Production Possibilities Frontier

44. Production Possibilities (cont.)
Economists use the production possibilities frontier to illustrate opportunity cost.
Production Possibilities Frontier
Section 3

45. Production Possibilities (cont.)
This diagram takes into account various factors.
Identifying possible alternatives
Fully employed resources
The cost of idle resources
Section 3

46. Production Possibilities (cont.)
Opportunity cost
Economic growth
Opportunity Cost
Economic Growth
Section 3

47. Thinking Like an Economist
Economists use a strategy called cost-benefit analysis to evaluate choices.
Section 3

48. Thinking Like an Economist (cont.)
Economists are concerned with helping people make the best choices.
Section 3

49. Thinking Like an Economist (cont.)
Economists use two strategies:
Building models
An economic model is a simplified equation, graph, or figure based on assumptions.
Cost–benefit analysis
Investing in projects that give the highest return per dollar spent
Section 3

50. The Road Ahead
The study of economics helps people become better citizens.
Section 3

51. The Road Ahead (cont.) Through studying economics
We get a better understanding of the workings of a free enterprise economy.
Our standard of living is based on supply and demand, pricing, productivity, property rights, inflation, and economic growth, among other factors.
Section 3

52. The Road Ahead (cont.)
We become better decision makers in our personal lives and in the voting booth.
Most of our political problems have important economic aspects.
Economics helps us understand the complex world around us by providing a framework for analysis.
Section 3

53. Section Objectives Students will be able to:
Identify and describe trade offs and opportunity costs.
Describe how a Decision Making Grid works.
Describe how the PPF demonstrates both opportunity cost and economic growth..
Identify and describe the Production Possibilities Frontier model.
Section 3-Preview 53

54. Section 3-End

55. Scarcity Because of scarcity, society needs to decide how to distribute limited resources to satisfy seemingly unlimited wants and needs.
VS 1

56. Factors of Production Four factors of production are required to produce the things we would like to have.
VS 2

57. 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.
VS 3

58. VS-End

59. Figure 1

60. Figure 2

61. Figure 3

62. Figure 4

63. Figure 5

64. Figure 6

65. Figure 7

66. Figure 8

67. Figure 9

68. Adam Smith (1723–1790)
introduced the idea that the division of labor led to the great prosperity of Britain
defined the wealth of a nation as the sum of the goods produced by its people
Profile

69. Select a transparency to view.
Economic Concepts Transparencies
Transparency 1 Scarcity
Transparency 2 Opportunity Cost & Trade-Offs
Transparency 3 Productivity
Select a transparency to view.
Concept Trans Menu

70. Concepts Trans 1

71. Concepts Trans 2

72. Concepts Trans 3

73. DFS Trans 1

74. DFS Trans 2

75. DFS Trans 3

76. scarcity
fundamental economic problem of meeting people’s virtually unlimited wants with scarce resources
Vocab1

77. economics
social science dealing with the study of how people satisfy seemingly unlimited and competing wants with the careful use of scarce resources
Vocab2

78. need
basic requirement for survival, including food, clothing, and shelter
Vocab3

79. want something we would like to have but is not necessary for survival
Vocab4

80. factors of production
productive resources that make up the four categories of land, capital, labor, and entrepreneurs
Vocab5

81. land
natural resources or other “gifts of nature” not created by human effort
Vocab6

82. capital
tools, equipment, and factories used in the production of goods and services
Vocab7

83. capital goods
tools, equipment, and factories used in the production of goods and services
Vocab8

84. labor
people with all their efforts, abilities and skills
Vocab9

85. entrepreneur
risk-taking individual in search of profits
Vocab10

86. gross domestic product (GDP)
dollar value of all final goods, services, and structures produced within a country’s borders during a one-year period
Vocab11

87. resource any available means for economic or political development
Vocab12

88. comprehensive
covering many or all areas
Vocab13

89. good
tangible economic product that is useful, relatively scarce, and transferable to others
Vocab14

90. consumer good
good intended for final use by consumers rather than businesses
Vocab15

91. durable good
a good that lasts for at least three years when used regularly
Vocab16

92. nondurable good
a good that wears out or lasts for fewer than three years when used regularly
Vocab17

93. service
work or labor performed for someone
Vocab18

94. value monetary worth of a good or service as determined by the market
Vocab19

95. paradox of value
apparent contradiction between the high monetary value of a nonessential item and the low value of an essential item
Vocab20

96. utility
ability or capacity of a good or service to be useful and give satisfaction to someone
Vocab21

97. wealth
sum of tangible economic goods that are scarce, useful, and transferable from one person to another
Vocab22

98. market
meeting place or mechanism that allows buyers and sellers to come together
Vocab23

99. factor market
market where the factors of production are bought and sold
Vocab24

100. product market market where goods and services are bought and sold
Vocab25

101. economic growth
increase in a nation’s total output of goods and services over time
Vocab26

102. productivity
measure of the amount of output produced with a given amount of productive factors
Vocab27

103. human capital
sum of people’s skills, abilities, health, knowledge and motivation
Vocab28

104. division of labor
division of work into a number of separate tasks to be performed by different workers
Vocab29

105. specialization
assignment of tasks to the workers, factories, regions, or nations that can perform them more efficiently
Vocab30

106. economic interdependence
mutual dependency of one person’s, firm’s, or region’s economic activities on another’s
Vocab31

107. transferable able to be moved from one person or place to another
Vocab32

108. accumulation
gradual collection of goods
Vocab33

109. mechanism
process
Vocab34

110. trade-off
alternative that is available whenever a choice is to be made
Vocab35

111. opportunity cost
cost of the next-best alternative use of money, time, or resources when making a choice
Vocab36

112. production possibilities frontier
diagram representing the maximum combinations of goods and/or services an economy can produce when all productive resources are fully employed
Vocab37

113. economic model
simplified version of a complex concept or behavior expressed in the form of an equation, graph, or illustration
Vocab38

114. cost-benefit analysis
way of thinking about a choice that compares the cost of an action to its benefits
Vocab39

115. free enterprise economy
market economy in which privately owned businesses have the freedom to operate for a profit with limited government intervention
Vocab40

116. standard of living
quality of life based on ownership of necessities and luxuries that make life easier
Vocab41

117. alternative
the second of two choices
Vocab42

118. assumption
something taken for granted
Vocab43

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