EconomicsEconomics

Chapter 1Chapter 1

Section 1Section 1

The Fundamental Economic The Fundamental Economic ProblemProblem

Most people seem to want more stuffMost people seem to want more stuff ScarcityScarcity- the condition that results from - the condition that results from

society not having enough resources to society not having enough resources to produce all the things that people would produce all the things that people would like to havelike to have

EconomicsEconomics- the study of how people try - the study of how people try to satisfy what appears to be seemingly to satisfy what appears to be seemingly unlimited and competing wants through unlimited and competing wants through the careful use of relatively scarce the careful use of relatively scarce resourcesresources

No Free LunchNo Free Lunch

A A needneed is a basic requirement for survival is a basic requirement for survival and includes food, clothing, and shelterand includes food, clothing, and shelter

A A wantwant is a way of expressing a need, the is a way of expressing a need, the range of the things represented by the term range of the things represented by the term want is much broader- exp. Foodwant is much broader- exp. Food

Because of limited resources basically Because of limited resources basically everything we do has a costeverything we do has a cost

““free” items usually come with a catchfree” items usually come with a catch

3 basic questions3 basic questions

What to produce? Military equipment, food, What to produce? Military equipment, food, clothing, housing, or surfboards?clothing, housing, or surfboards?

A society cannot have everything its people A society cannot have everything its people want, so decisions must be madewant, so decisions must be made

How should you produce the stuff? Lots of How should you produce the stuff? Lots of equipment and a few laborers, lots of equipment and a few laborers, lots of laborers and less equipment?laborers and less equipment?

Production cost Vs. JobsProduction cost Vs. Jobs

3 basic questions3 basic questions

For whom to produce the goodsFor whom to produce the goods Should the goods be distributed to the Should the goods be distributed to the

workers, professional people, or government workers, professional people, or government employees?employees?

How does a society decide these three How does a society decide these three major questions?major questions?

Factors of productionFactors of production

Factors of production-Factors of production- resources required to resources required to produce the things we would like to have- land, produce the things we would like to have- land, capital, labor, and entrepreneurscapital, labor, and entrepreneurs

LandLand- refers to the “gifts of nature” or natural - refers to the “gifts of nature” or natural resources not created by humans- fertile fields, resources not created by humans- fertile fields, forests, mineral deposits, livestock, and sunshineforests, mineral deposits, livestock, and sunshine

Because only so much can be available at any Because only so much can be available at any given time, this tends to be though of as being given time, this tends to be though of as being fixed, or in limited supplyfixed, or in limited supply

CapitalCapital

CapitalCapital- the tools, equipment, machinery, - the tools, equipment, machinery, and factories used in the production of and factories used in the production of goods and servicesgoods and services

They are called capital goods to distinguish They are called capital goods to distinguish them from financial capital- the money used them from financial capital- the money used to buy the tools and equipment used in to buy the tools and equipment used in productionproduction

Capital is unique in that it is the result of Capital is unique in that it is the result of production- exp. Bulldozer, cash registerproduction- exp. Bulldozer, cash register

LaborLabor

LaborLabor- people with all their efforts, abilities - people with all their efforts, abilities and skills. Includes all people except and skills. Includes all people except entrepreneurs.entrepreneurs.

This resource may vary in size over time- This resource may vary in size over time- factors such as population growth, factors such as population growth, immigration, famine, war, and disease immigration, famine, war, and disease impact the quantity and quality of laborimpact the quantity and quality of labor

EntrepreneursEntrepreneurs

EntrepreneursEntrepreneurs- a risk taker in search of - a risk taker in search of profits who does something new with profits who does something new with existing resourceexisting resource

Exhibit the ability to start new businesses or Exhibit the ability to start new businesses or bring new products to the marketbring new products to the market

ProductionProduction- the process of creating goods - the process of creating goods and services must have all of the factors of and services must have all of the factors of productionproduction

Even at schoolsEven at schools

Scope of EconomicsScope of Economics

4 key elements to the study of economics: 4 key elements to the study of economics: description, analysis, explanation, and predictiondescription, analysis, explanation, and prediction

Description of economic activityDescription of economic activity Gross Domestic Product (GDPGross Domestic Product (GDP)- the dollar )- the dollar

value of all final goods and services, and value of all final goods and services, and structures produced, within a countries borders in structures produced, within a countries borders in a 12- month perioda 12- month period

Also concerned with what is produced, who gets Also concerned with what is produced, who gets how much, as well as unemployment, inflation, how much, as well as unemployment, inflation, international trade, interaction of business and international trade, interaction of business and labor and gov’t spending and taxeslabor and gov’t spending and taxes

AnalysisAnalysis

Why are the prices for some items high and Why are the prices for some items high and others low?others low?

Why are some incomes higher then others?Why are some incomes higher then others? How do taxes effect people’s desire to work How do taxes effect people’s desire to work

and save?and save? Analysis helps us to discover why things Analysis helps us to discover why things

work and how things happenwork and how things happen

ExplanationExplanation

If we all have a common understanding of the way If we all have a common understanding of the way our economy works, some economic problems will our economy works, some economic problems will be much easier to address or even fix in the futurebe much easier to address or even fix in the future

PredictionPrediction- people will want to know if their - people will want to know if their incomes will rise or fall in the future, affecting their incomes will rise or fall in the future, affecting their spending habits in the marketplacespending habits in the marketplace

Or trying to choose between higher taxes on Or trying to choose between higher taxes on homeowners or higher taxes on businesseshomeowners or higher taxes on businesses

PredictionPrediction

Economics deals with the study of what is or Economics deals with the study of what is or what tends to be, it can help predict what what tends to be, it can help predict what may happen in the future, as well as the may happen in the future, as well as the likely consequences of different courses of likely consequences of different courses of actionaction

The actual decisions about the economic The actual decisions about the economic choices to be made are the responsibility of choices to be made are the responsibility of all citizens in a free and democratic societyall citizens in a free and democratic society