Chapter 1

What is Economics?

Section 1 An Economic Way of Thinking

• Economics-the study of the choices that people make to satisfy their needs and wants.

• Economist-A person who studies these economics choices.

Economic Actions

• Two categories - Microeconomics & Macroeconomics.

• Microeconomics-is the study of the choices make by economic actors such as households, companies, & individual markets. (micro-means small)

• Ex. Exxon Corporation is considered a microeconomic topic because only a single economic actor is involved.

Macroeconomics

• Macroeconomics-examines the behavior of entire companies

• Ex. Unemployment in the United States is a macroeconomic topic

Economic Decisions

• Who make Decisions?• Consumers- the people who decide to buy

things.• Producers- the people who make the things

that satisfy consumers’ needs and wants.• Consumers choose what to buy, &

producers choose what to provide and how to provide it.

How do you Make Decisions?

• Based on your needs and wants.• Needs- those goods and services that are

necessary for survival, such as food, clothing and shelter.

• Wants- are those goods and services that people consume beyond what is necessary for survival, ex. Magazines, television sets, & car washes.

How do you Make Decisions? (cont’)

• Goods-are physical objects that can be purchased.

• Ex. Pizza, bicycle, pair of tennis shoes.

How do you Make Decisions?

• Services- are actions or activities that are performed for a fee.

• Ex. Lawyers, plumbers, teachers, & taxi cab drivers.

• Product-refers to both goods & services

Economic Resources

• A resource is anything that people use to make or obtain what they need or want.

• Factor of Production-Resources that can be used to produce goods and services.

• Natural resources,• Human resources,• Capital resources, &• Entrepreneurship.

NATURAL RESOURCES

• Natural resources- Items provided by nature that can be used to produce goods and to provide services.

• Found on earth or in the earth’s atmosphere

• Ex. Farm land in Ca., trout-filled rivers in Montana, oil fields in OK., Coal mines in WV.,

• Ex. Atmospheric resources include sunlight, wind, & rain.

NATURAL RESOURCES

• A natural resource is considered a factor of production only when it is scarce and some payment is necessary for its use.

• Ex. The air you breathe on the beach is not a factor of production b/c its is not scarce & you do not have to pay to use it.

• If you go scuba diving, you have to pay for the bottled air in the scuba tanks.

HUMAN RESOURCES

• Human resource-any human effort exerted during production.

• Effort can be physical or intellectual.

• Ex. Assembly-line workers, ministers, & store clerks all are human resources.

CAPITAL RESOURCES

• Capital Resources- the manufactured materials used to create products.

• Includes capital goods & the money used to purchase them.

• Capital goods are the buildings, structures, machinery, & tools used in the production process.

• Ex. Department stores, factories, dams, computers, & hammers.

CAPITAL RESOURCES

• Capital goods are the manufactured resources that are used in making finished products.

• Consumer goods – finished products- the goods and services that people buy.

• Bicycle for personal use is a consumer good.

• Bicycle for messenger service is classified as a capital good.

CAPITAL RESOURCES

• Technology – is the use of technical knowledge and methods to create new products more efficiently.

• Ex. Some highly automated plants, computers direct production by issuing electronic instructions to robots on assembly lines.

CAPITAL RESOURCES

• Entrepreneurship-the organization abilities and risk taking involved in start a new business or introducing a new product.

• The goal of entrepreneurship is to develop a new combination of the other factors of production, creating something of value.

CAPITAL RESOURCES

• Entrepreneur – is a person who attempts to start a new business or introduce a new product-risking economic failure in return for the possibility of financial gain.