1. Section 1 The Basic Economic Problem

2. KEY CONCEPT Scarcity is the situation that exists because wants are unlimited and resources are limited. Chapter 1: The Economic Way of Thinking WHY THE CONCEPT MATTERS The concept of scarcity is an issue you confront in everyday life. Suppose you have $20 to cover the cost of lunches for the week. How would you use the money to cover your wants Monday through Friday? How would buying a late afternoon snack for $1 on two of the days affect your lunch choices?

3. Section-1 KEY CONCEPTS Wants — desires that can be met by consuming products Needs — things necessary for survival Scarcity — lack of resources available to meet all human wants not a temporary shortage Economics — study of how people use resources to satisfy wants — examines how individuals and societies choose to use resources — organizes, analyzes, interprets data about economic behaviors — develops theories, economic laws to explain economy, predict future Scarcity: The Basic Economic Problem What Is Scarcity?

4. Principle 1: People Have Wants People make choices about all their needs and wants Wants are unlimited, ever changing Principle 2: Scarcity Affects Everyone Scarcity affects which goods and services are provided Goods — physical objects that can be bought Services — work one person does for another for pay Consumer — person who buys good or service for personal use Producer — person who makes a good or provides a service What Is Scarcity?

5. KEY CONCEPTS Scarcity affects society and producers as well as individuals Society must answer three basic economic questions: — what will be produced? — how will it be produced? — for whom will it be produced? Scarcity Leads to Three Economic Questions

6. Question 1: What Will Be Produced? Societies must decide on mix of goods to produce — depends in part on their natural resources Some countries allow producers and consumers to decide In other countries, governments decide Must also decide how much to produce; choice depends on societies’ wants Question 2: How Will It Be Produced? Decisions on production methods involve using resources efficiently — decisions influenced by a society’s natural resources Societies adopt different approaches — with unskilled labor force, might use labor-intensive methods — with skilled labor force, might use capital-intensive methods Question 3: For Whom Will It Be Produced? How goods and services are distributed involves two questions — how should each person’s share be determined? — how will goods and services be delivered to people? Scarcity Leads to Three Economic Questions

7. KEY CONCEPTS Factors of production — resources needed to produce goods and services — include land, labor, capital, entrepreneurship — supply is limited The Factors of Production

8. Factor 1: Land Land means all natural resources on or under the ground — includes water, forests, wildlife, mineral deposits Factor 2: Labor Labor is all the human time, effort, talent used to make products — physical and mental effort used to make a good or provide a service Factor 3: Capital Capital is a producer’s physical resources — includes tools, machines, offices, stores, roads, vehicles — sometimes called physical capital or real capital Workers invest in human capital — knowledge and skills — workers with more human capital are more productive Factor 4: Entrepreneurship Entrepreneurship — vision, skill, ingenuity, willingness to take risks Entrepreneurs anticipate consumer wants, satisfy these in new ways — develop new products, methods of production, marketing or distributing — risk time, energy, creativity, money to make a profit The Factors of Production