Bell Ringer:

What material things would you like to own?

Make a list!

Chapter 1: What is Economics?

Activity: Make a list of all the Activity: Make a list of all the things you would like to own.things you would like to own.

1.1 1.1 The Fundamental Economic The Fundamental Economic ProblemProblem

ScarcityScarcity is the condition where unlimited human is the condition where unlimited human wants face limited resources. wants face limited resources. – There’s not enough resources to produce all we want!There’s not enough resources to produce all we want!

EconomicsEconomics is the study of how people satisfy is the study of how people satisfy wants with scarce resources. wants with scarce resources.

• NeedsNeeds are required for survival are required for survival• Food, clothing, and shelterFood, clothing, and shelter

• WantsWants are a way of expressing a need. A want are a way of expressing a need. A want may notmay not be required for survival. be required for survival.• Pizza, house with a pool, a car with leatherPizza, house with a pool, a car with leather

TINSTAAFFFL

• There Is No Such Thing As A Free LunchThere Is No Such Thing As A Free Lunch

– Even it is FREE to us, someone has to pay Even it is FREE to us, someone has to pay for production costs. for production costs.

– ““BOGO”BOGO”– Sometime, somewhere you will pay for it!Sometime, somewhere you will pay for it!

Three Basic QuestionsThree Basic Questions

• What TO produce?What TO produce? Society must choose Society must choose based on its need. based on its need.

• How TO produce it?How TO produce it? Society must choose how Society must choose how a product is made. a product is made.

• For WHOM should we For WHOM should we produce?produce? Society must Society must choose who to make it choose who to make it for.for.

The Factors of ProductionThe Factors of Production

• Factors of production are resources necessary to produce what people want or need.

• Land

• is the society’s limited natural resources—landforms, minerals, vegetation, animal life, and climate.

• Capital

• is the means by which something is produced such as money, tools, equipment, machinery, and factories.

• LaborLabor

• is the workers who apply their efforts, is the workers who apply their efforts, abilities, and skills to production. abilities, and skills to production.

• EntrepreneursEntrepreneurs

• are risk-takers who combine the land, labor, are risk-takers who combine the land, labor, and capital into new products. and capital into new products.

• ProductionProduction

• is creating goods and services—the result of is creating goods and services—the result of land, capital, labor, and entrepreneurs.land, capital, labor, and entrepreneurs.

The Scope of Economics A social scienceA social science

– Study of human behavior on satisfying unlimited Study of human behavior on satisfying unlimited wants.wants.

DescriptionDescription– Gross Domestic Product (GDP): the $ value of all final Gross Domestic Product (GDP): the $ value of all final

goods and services produced in a country in 12 mths.goods and services produced in a country in 12 mths.– Unemployment, inflation, trade, business and labor, Unemployment, inflation, trade, business and labor,

gov’t spending, and taxes.gov’t spending, and taxes. AnalysisAnalysis

– The “WHY and HOW” questionsThe “WHY and HOW” questions ExplanationExplanation

– Answering the HOW and WHY questionsAnswering the HOW and WHY questions PredictionPrediction

– How people are going to behave in the current market.How people are going to behave in the current market.

Study for 1.1 Quiz

1) ______ is the condition where unlimited is the condition where unlimited human wants face limited resources. human wants face limited resources.

2) ______ is the means by which something is produced such as money, tools, equipment, machinery, and factories.

3) _____ are required for survival. 4) What does TISNTAAFL stand for? 5) What are the 3 basic economic questions?

1.2 Goods, Services, and Goods, Services, and ConsumersConsumers• Economic ProductEconomic Product

• Goods and services that are useful, scarce, and Goods and services that are useful, scarce, and transferable. transferable.

• GoodsGoods

• are items that are economically useful or satisfy an are items that are economically useful or satisfy an economic want. economic want.

• Consumer: are intended by use by YOU!Consumer: are intended by use by YOU!

• Capital: manufactured goods are used to produce Capital: manufactured goods are used to produce others goods and services.others goods and services.

• Durable: Lasts 3 or more years when used Durable: Lasts 3 or more years when used regularly.regularly.

• Nondurable: Lasts less than 3 years when used Nondurable: Lasts less than 3 years when used regularly.regularly.

• Services Services

• Are product or work performed for someone Are product or work performed for someone and are intangible. and are intangible.

• Consumers use goods and services to Consumers use goods and services to satisfy wants and needs.satisfy wants and needs.

Why is the US called “nation of Why is the US called “nation of consumption”?consumption”?

Value, Utility, and Wealth• Value Value

• is worth expressed in dollars and cents. Scarcity by itself is not is worth expressed in dollars and cents. Scarcity by itself is not enough to create value. enough to create value.

• PARADOX of VALUE: Why do some things have more worth PARADOX of VALUE: Why do some things have more worth than others? than others?

• Some necessities have no value & non-necessities have valueSome necessities have no value & non-necessities have value

• UtilityUtility • is a good’s or service’s capacity to provide satisfaction, which is a good’s or service’s capacity to provide satisfaction, which

varies with the needs and wants of each person. varies with the needs and wants of each person.

• WealthWealth • is the accumulation of goods that are tangible, scarce, useful, is the accumulation of goods that are tangible, scarce, useful,

and transferable to another person. and transferable to another person.

• Wealth does not include services.Wealth does not include services.

The Circular Flow of Economic Activity

• Markets are locations for Markets are locations for buyers and sellers to trade. buyers and sellers to trade. They are classified as local, They are classified as local, regional, national, global, and regional, national, global, and cyberspace. cyberspace.

A factor market is where A factor market is where people earn their incomes.people earn their incomes.

• A product market is where A product market is where people use their income to people use their income to buy from producers. Product buy from producers. Product markets center on goods and markets center on goods and services.services.

ProductivityProductivity Economic GrowthEconomic Growth

– Occurs when a nation’s total output of goods Occurs when a nation’s total output of goods and services increase. and services increase.

ProductivityProductivity– Amount of output produced by a given Amount of output produced by a given

amount of inputs in a specific period of time. amount of inputs in a specific period of time. Division of LaborDivision of Labor

– Work is arranged so that workers do fewer Work is arranged so that workers do fewer tasks than before. tasks than before.

Specialization– The performance of tasks that can be done relatively

efficiently than others• EX> Henry Ford’s assembly line

Human Capital– Sum of skills, abilities, health, and motivation of

people. • Education, health care, continuing Ed, training

Investing– Businesses must invest in their employees

Interdependence – We rely on others and others rely on us to provide

goods and services that we consume.• EX> Writer’s Strike, Automaker Crisis

Review Section 2 Notes

I. ______ is the sum of skills, abilities, health, and motivation of people.

II.II. _______ is worth expressed in dollars and _______ is worth expressed in dollars and cents.cents.

III.III. _____ __ _____ Why do some things have _____ __ _____ Why do some things have more worth than others? Some necessities more worth than others? Some necessities have no value & non-necessities have value.have no value & non-necessities have value.

IV.IV. ______ market is where people earn their ______ market is where people earn their incomes.incomes.

V.V. ______ are product or work performed for ______ are product or work performed for someone and are intangible. someone and are intangible.

VI ______ are items that are economically useful VI ______ are items that are economically useful or satisfy an economic want. or satisfy an economic want.

VII _____ goods that last more than 3 years when VII _____ goods that last more than 3 years when used regularly.used regularly.

VIII _____ is a good’s or service’s capacity to VIII _____ is a good’s or service’s capacity to provide satisfaction, which varies with the provide satisfaction, which varies with the needs and wants of each person. needs and wants of each person.

IX _____ is the accumulation of goods that are IX _____ is the accumulation of goods that are tangible, scarce, useful, and transferable to tangible, scarce, useful, and transferable to another person. another person.

X _____ ___ ______ is when work is arranged so X _____ ___ ______ is when work is arranged so that workers do fewer tasks than before. that workers do fewer tasks than before.

1.3 Trade-Offs and Opportunity Cost

• Trade-offs

• are the alternative choices people face in making an economic decision. A decision-making grid lists the advantages and disadvantages of each choice.

• Opportunity cost

• is the cost of the next best alternative among a person’s choices. The opportunity cost is the money, time, or resources a person gives up, or sacrifices, to make his final choice.

• Identifying possible alternatives allows an economy to examine how it can best put its limited resources into production.

• Cost-benefit analysis

• helps economists evaluate alternatives by looking at each choice’s cost and benefit.

• The study of economics helps people understand how a free enterprise economy makes the WHAT, HOW, and FOR WHOM decisions.