Chapter 1.1: Scarcity & the Science of Economics

1. Chapter 1.1: Scarcity & the Science of Economics

2. Objectives • Explain the fundamental economic problem. • Examine the 3 basic economic questions that every society must answer. • List & give examples of the 4 factors of production.

3. Section Key Terms • scarcity economics • need want • land capital • financial capital • labor • entrepreneur

4. Most people want more than they already have (Don’t you?!) Economics: Study of how people try to satisfy unlimited wants with limited resources **#1 Rule of Economics: TINSTAAFL (means?)

5. Basic Economic Problem: SCARCITY – condition resulting from society not having enough resources to produce all the things people would like to have Needs vs. Wants

6. 3 BASIC QUESTIONS EVERY SOCIETY MUST ANSWER: • What to produce • How to produce • For whom are the products are being produced

7. 4 FACTORS OF PRODUCTION 1. Land Must be natural & is limited

8. 2. Capital Tools, equipment, machinery, factories used for production

9. 3. Labor

10. 4. Entrepreneurs Risk takers in search of a new business

11. Ch 1.2: Economic Concepts

12. Objectives • Explain the relationship between goods, services, scarcity, value, utility & wealth. • Understand the circular flow of economic activity.

13. Section Key Terms • economic product good • consumer good capital good • service value • paradox of value utility • wealth market • factor market product market • economic growth productivity • human capital

14. Economic Products - goods & services that are useful, relatively scarce & transferable 4 Types of Goods(give 4 examples of each): 1. Consumer - used by? 2. Capital – used to? 3. Durable – lasts for? 4. Nondurable – lasts for? Service – work performed by someone

15. Econ. products must have 2 things: • Value – worth expressed in dollars & cents Paradox of value – some necessities have little value whereas some non-necessities have higher value Ex. “diamond-water paradox” Why? Scarcity!

16. Economic products must have (cont’d) 2. Utility – capacity to be useful & provide satisfaction (not measurable, different for everyone) Wealth – sum of tangible goods that are scarce, useful & transferable from one to another (services not included)

17. Circular Flow of Economic Activity • Markets – locations/mechanisms that allow buyers & sellers to trade (can be local, regional, national, global) • Factor Market – where productive resources are bought & sold (where you make your $) • Product Market – where goods & services are sold (where you spend your $)

19. Economic growth occurs when a nation’s total output of goods and services increases over time Productivity – measure of the amount of output produced by a given amount of inputs in a specific time period Investing in human capital (sum of the skills, abilities, health & motivation of people) contributes to increasing productivity

20. Chapter 1.3 Choices & Decision Making

21. Objective • 1.Analyze trade-offs & opportunity costs. • 2. Explain the reasons for studying economics.

22. Section Key Terms • trade-off • opportunity cost • production possibilities frontier • cost-benefit analysis

23. Matt has 2 choices for a summer job. The 1st opportunity is at a computer manufacturer, where he would earn $10.25 an hour. The 2nd is with a landscaping company, where he could work & have lunch with 3 of his closest friends every day. That job would pay $8.65 an hour. For one 40-hour workweek, what would be the opportunity cost, in dollars, of accepting the landscaping job? What would be the opportunity cost of accepting the manufacturing job?

24. Cost-Benefit Analysis: The benefit should outweigh the cost Economics for Citizenship: Studying economics will not tell you what decisions to make, but it will help you become a better decision-maker