1. Economics
The Social Science that deals with the fundamental economic problem of meeting people’s virtually unlimited wants with scarce resources
Needs are basic requirements for survival – food, clothing, and shelter
Wants are something we would like to have but is not necessary for survival
We all have needs and unlimited wants and we all have limited resources, even Bill Gates – even he cannot buy certain things like time!

2. Unlimited Wants
The human characteristic of never having all wants satisfied.
The “Pig Principle” – generally speaking, people prefer n+1 of a good to n.

3. Limited Resources
The condition of there not being enough resources to fulfill all wants and needs
If you won a million dollars could you satisfy all your wants and needs?
How about 100 million?
Typically more $ creates more wants and needs!

4. Unlimited wants and needs
Scarcity
The fundamental economic problem of meeting people’s virtually unlimited wants with scarce resources
In other words…
Unlimited wants and needs
+ limited resources
= Scarcity
Scarcity is always the economic problem

5. Allocation
The process of choosing which needs will be satisfied and how much of our resources we will use to satisfy them
Allocation is how individuals and society overcome scarcity

6. 3 Basic Economic Questions
WHAT will be produced with the limited resources?
HOW will the goods and services be produced?
FOR WHOM will the goods and services be produced?

7. The Four Factors of Production
Anything used to produce a good or service
Land – natural resources or other “gifts of nature” not created by human effort – RENT
Capital – tools, equipment, and factories used in the production of goods and services – INTEREST
Labor – people with all their efforts, abilities and skills– WAGES
Entrepreneurship – the managerial ability and risk taking that contribute so much to a productive economy - PROFIT

8. The Scope of Economics
Description – economics can describe economic activity ie. Gross Domestic Product
Analysis – economics can be used to analyze economic activity ie. Why do some prices rise faster than others?
Explanation – after analyzing a problem, economists need to communicate this knowledge with others
Prediction – economists predict what will happen in the future

9. Goods, Services, and Consumers
Good – tangible economic product that is useful, relatively scarce, and transferable
Consumer Good – good intended for final use by consumers rather than businesses
Durable Good – lasts for at least three years when used regularly
Nondurable Good – wears out or lasts for fewer than three years when used regularly
Service – work or labor performed for someone

10. Value, Utility and Wealth
Value – the monetary worth of a good or service as determined by the market
Paradox of Value – apparent contradiction between the high monetary value of a nonessential item and the low value of an essential item
Utility – ability or capacity of a good or service to be useful and give satisfaction to someone
Wealth – sum of tangible economic goods that are scarce, useful, and transferable from one person to another

11. Circular Flow Diagram of the Economy
Factor Market
Product Market

12. Productivity and Economic Growth
Economic Growth occurs when a nation’s total output of goods and services increases over time
Productivity – a measure of the amount of goods and services produced with a given amount of resources in a specific period of time. Three ways to increase productivity are:
Investing in Human Capital – the sum of people’s skills, abilities, health, knowledge, and motivation

13. Productivity and Economic Growth
Division of Labor – is a way of organizing work so that each individual worker completes a separate part of the work
Specialization – takes place when factors of production perform only tasks they can do better or more efficiently than others
Our economy has a high level of Economic Interdependence – we rely on others, and others rely on us, to provide most of the goods and services we consume – events in one part of the world affects us greatly

14. Adam Smith
He published An Inquiry Into the Nature and Causes of the Wealth of Nations
“Wealth of Nations" established economics as an autonomous subject and launched the economic doctrine of free enterprise, he
also introduced
the concept of
division of
labor and
specialization
The “Invisible Hand” – guides the most efficient use of resources in a nation's economy, with public welfare coming as a by-product
He believed in laissez-
faire economics, i.e.. the gov't should leave the economy
alone

15. Costs and Benefits
In life, every decision has an opportunity cost AND an opportunity benefit.
Opportunity Cost – the value of the next best alternative that you must give up when you make a choice
Trade-off – alternative that is
available whenever a choice is to
be made

16. Costs and Benefits
Ex.
You can choose to work after school or be in volleyball
You can buy a car or save for college
You can go out with your friends or on a date
You can visit your grandparents or work
You can watch TV or do your homework
You can buy a pair of shoes or an Ipod

17. PACED Decision-Making Model
Problem – define the problem
Alternatives – list the alternatives from
which you must choose
Criteria – list the criteria by which you
must evaluate the alternatives
Evaluate – evaluate the alternative based on the criteria you have chosen
Decide – choose the alternative that best meets the criteria you have chosen

18. Production Possibilities
Production Possibilities Frontier (Curve) – diagram representing the maximum combination of goods and/or services an economy can produce when all productive resources are fully employed
Points A and B represent fully
employed resources. Point C
represents idle resources and
Point D is unattainable for now.

19. Economic Terms
Economic Model – a simplified equation, graph, or figure showing how something works
Cost – Benefit Analysis – a way of thinking about a choice that compares the cost of an action to its benefits
Free Enterprise System – market economy in which privately owned businesses have the freedom to operate for a profit with limited government intervention
Standard of Living – quality of life based on ownership of necessities and luxuries that make life easier