1. Chapter 1: What is Economics?
Essential Questions:
Unit 1: How does economics affect everyone?
Chapter 1: How can we make the best economic choices?

2. Scarcity and the Factors of Production
Scarcity and choice
Economics exists because we have unlimited wants & needs but limited resources.
____vs. _______
Which is essential for survival?
What is something we want but can live without?
______ v. _______
Physical objects such as ________ &___________
Actions or activities such as __________ & __________

3. ___________ is the fundamental problem in economics
Needs and wants are ___________.
When one is satisfied, others come up.
Goods & services are ___________
No one can have an ________ supply of ________
This is scarcity!!

4. People Choose As a result of _______, people have to ________________.
Examples:
Scarce _____: play a sport or have an after school job?
Scarce _______: save for a car or save for college?
Scarce _______: hire more workers or open a new store?

5. What is Economics?
Economics is the study of how people (and businesses & governments) make choices as a result of the reality of scarcity.
Scarcity ≠ shortage
Scarcity is __________
as a _________
Scarcity is a fundamental _______ ____________________
A shortage is a specific situation where buyers want ________ of a _______ than sellers are willing to make available at a given _________. (more about this in chapter 6)

6. Who makes goods & services?: The role of the _________________
Entrepreneurs are _________ who decide how to combine _________ to create new _______ and ________.
They are willing to assume ______ in hopes of __________________
Etymology: French word coined by Jean-Baptiste Say (French economist in the 1700s)

7. The Factors of _______________
The factors of production are the _________ used to make all _______ and _________
What are they?
_________ (all the natural resources needed)
_________ (workers)
_________ (human-made resource used to make other goods & services)
(Entrepreneurship) many textbooks also list this as a factor of production.

8. Factors of Production continued
Land
Land for farming
Coal for mining
Water for running a hydroelectric dam
Doesn’t have to be made or produced
Naturally occurring

9. Factors of production continued
Labor
Work people do that they are paid for
Doctors providing medical care
Instruction provided by a teacher
Mechanic fixing your car
Painter painting your house

10. Factors continued Capital
_________ (human made) used to produce other ______ & _________
Two types:
___________ capital (capital goods)
Buildings such as a factory
Equipment on an assembly line
__________ capital
Knowledge & skills gained by workers

11. Benefits of Capital Many businesses choose to invest in capital
Increases _____________
Better equipment such as faster computers
_______for workers to make them more _______
See the book’s dishwasher example on p. 6-7

12. Benefits of Capital 1. Extra __________ More ______________
Saves time to be more efficient
More ______________
Learn skills that can transfer to other activities
More _______________
Can do more in the extra time that is freed up

13. Scarce Resources
Remember that __________ is ________ so everyone has to
_______________
Even french fries
Use the land to grow the potatoes
Use the water to help them grow
Use the workers to farm the land
Use the fuel to run the equipment and transport them to stores

14. Scarcity continued Everyone faces scarcity
Individuals
Businesses
Families
governments
Scarcity means we have to make choices about how to best use our scarce resources
This is what economics is all about!

15. Can something that is abundant be scarce?
YES! Things can be scarce and abundant at the same time!
Remember, it’s not the same as a shortage!
Water
Air
Oil in Saudi Arabia
What makes the difference?
Is it rare?
Are there alternative uses?
Choices! (mutually exclusive?)

16. Section 2: Opportunity Cost
Every time we _______________________, we _____________________ to do something else!
________________ and _________________
A ___________ is giving up one benefit to get another benefit
The foregone opportunity of the most desirable alternative is the ________________

17. Would you….? Sleep late or wake up early to study for a test
Sleep late or wake up early to go to work
Sleep late or wake up early to eat breakfast
Sleep late or wake up early to go on a trip
The specific opportunity costs of each choice determined your answer.

18. Thinking at the Margin
Many economic decisions are made at the ___________ & thinking in terms of __________:
What difference will _______________ of investment make?
_________________ worker?
Studying for one more hour?
To decide, you can compare the costs and benefits. This is called cost/benefit analysis
You can calculate the marginal benefits and the marginal cost.
If marginal benefits are _____________ than marginal ___________, it pays to add more units (dollars, hours, workers, etc.)

19. Production Possibilities Curves
Remember that scarcity means that everyone (individuals, businesses, governments) has to make choices
How should scarce resources be used?
Production Possibilities curves can help because they show the options
Guns vs. butter
The example of Capeland on p. 14

22. Comparing options

24. Production Possibilities Frontiers
Each point on the _____ reflects a ___________
These trade-offs must be made because ______________________
If you use __________________ to make one thing, ____________to produce more of the other
Not all points are possible given the resources available
What does it mean to be underneath the curve or outside the curve?

25. Production Possibilities continued
What does it mean if a point is below the curve on the production possibilities frontier?
Underutilization of resources
Unemployment
Old equipment?

26. What does it mean if a point is outside the frontier?
Can’t achieve that point given the current resources
Requires _________ in the economy
Means the curve has shifted to the _________
How could you get there?
__________ investment (human or physical)
Build a new factory
Hire more workers
New _____________?
The curve can also shift to the ___________
Recession
Drought
Increase in the cost of capital goods?

27. Cost
Can use production _______________ to calculate the costs of ______ about how to use ___________
How much of producing ________ will you have to give up to get more of the __________?
Law of _____________ costs: you reach a point where it takes more and more of a resource to increase production
Rain forest in South America
Oil in North America (“fracking”)
THIS LAW IS WHY THE CURVE IS A CURVE and not a straight line. There’s not a 1:1 trade-off It reaches a point where there’s more and more traded off for less and less output

28. Remember the essential question?
How can we make the best economic choices?
Trade-offs and opportunity cost
The fundamental problem is scarcity
That’s why economics exists