1. THE BASIC ECONOMIC PROBLEM
SCARCITY
THE BASIC ECONOMIC PROBLEM

2. What is scarcity?
Exists when there are not enough resources to meet human wants

3. ECONOMICS
The study of how people choose to use scarce resources to satisfy their wants.

4. Economics:
Examines how individuals, businesses, governments, and societies choose to use scarce resources to satisfy their wants
Organizes, analyzes, & interprets data about economic behaviors
Develops theories & economic laws that explain how the economy works & to predict what might happen in the future

5. There is no clear-cut way to answer most economic problems.
What is an Economist?
person who studies, develops, and applies theories of economic behavior
create MODELS/THEORIES to explain themselves
There is no clear-cut way to answer most economic problems.

6. MICROECONOMICS
The study of the behavior of individual players in an economy
Individuals
Families
Businesses
Covers personal choice, INDIVIDUAL business behavior, and individual markets.

7. MACROECONOMICS The study of the behavior of the economy as a whole
Inflation
Unemployment
GDP & GNP
Covers the OVERALL performance of the economy. It is the result of all the decisions made in Microeconomics.

8. Positive Economics
-way of describing and explaining economics as IT IS, not as it SHOULD BE; positive economics is OBJECTIVE meaning it can be proven Ex. A rise in crude oil prices will lead to a rise in gas prices.

9. Normative Economics
– way of describing and explaining what economic behavior OUGHT TO BE, not what IT ACTUALLY IS; normative economics is SUBJECTIVE meaning it is based on opinion Ex.) Pollution is the worst economic problem we face today.

10. What is a want?
Desires that can be satisfied by consuming a good or service

11. What is a need?
Things such as food, clothing, and shelter, that are necessary for survival

12. Goods vs. Services
Physical objects that can be purchased Work that one person performs for another for payment

13. Consumer vs. Producer
A person who buys goods or services for personal use A person who makes goods or provides services

14. 3 Basic Economic Questions
What will be produced?
Depends on natural resources
How will it be produced?
For whom will it be produced?

15. What are the 4 FOP’s??

16. LAND
All the natural resources found on or under the ground that are used to produce goods and services

17. LABOR
All the human time, effort, and talent that go into the production of goods and services.

18. REAL CAPITAL
All the physical resources made & used by people to produce & distribute goods and services

19. ENTREPRENEURSHIP
Combination of vision, ingenuity, and willingness to take risks to create & run new businesses

20. How all of these Factors of Production are connected is VERY IMPORTANT… www.classzone.com

21. Utility
The benefit or satisfaction gained from the use of a good or service
YAY!!
I’m learning so much!

22. Measuring Utile(s) with marshmallows
Satisfaction from each marshmallow
Number of marshmallows eaten

23. What happens to the utility of the marshmallows as each one is eaten?
IT GOES DOWN (It might initially go up, but it will eventually go down.)
What does this tell us about marginal utility?
AS EACH ADDITIONAL ITEM IS CONSUMED, THE UTILITY OF THE ITEM GOES DOWN
This is called the LAW OF DIMINISHING RETURNS (MARGINAL UTILITY). What do you think the law states?
AS EACH ADDITIONAL ITEM IS CONSUMED, THE SATISFACTION RECEIVED FROM THAT ITEM GOES DOWN

25. Economize
Make decisions according to what you believe is the best combination of costs and benefits

26. SCARCITY forces us to make CHOICES and when we make choices, we choose the option that BENEFITS us the most.
Basically, because of scarcity, we all act in our own SELF-INTEREST . Not selfishly, but we attempt to MAXIMIZE UTILITY.

27. PRICE
IS THIS A GOOD PRICE?
YES/NO
FOR WHOM?
$3.10
$5.00
$.50

28. So how do producers get us to act in a way that’s beneficial to them?
They provide incentives. Incentives:
Benefits offered to encourage people to act in certain ways