What is Economics?

Economics: The study of how people choose to use resources based on wants vs. needs and Benefit vs. Cost

Wants

Everyone has wants. The most basic are food, clothing, and shelter. These 3 are often considered NEEDS as they are the basics of life.

Everything else is considered wants.

 

While the basic needs remain consistent, wants often vary.

Wants differ from one society or culture to another: In the US a common want is luxurious material possessions (fancy cars, big houses, delicate food).

In Tibet, many want simple structures (tents and simple clothing to fit their way of life)

Participation Guide #1: Provide an example of a WANT of your generation or culture

Wants also change based on geographic location. The wants of someone living in Alaska is far different than those in Florida.

Participation Guide #2: Provide another example of a Geographical want

The wants of people change as they age.

As a child, you may want toys or candy Participation Guide #3 (Think of a want as a child)

As a teenager, your wants may change Participation Guide #4 (Think of a current want).

As an adult, your wants will be different again Participation Guide #5 (Think of a potential want as an adult)

Wants are also only satisfied for a short period of time. You bought a movie ticket to see a new release, but once it you have seen it there is no more “want” to see it again. It may then be replaced with the desire to see a different movie or do something completely different.

Understanding many wants occur again and again is essential in understanding how an economy functions.

Using Resources

The resources available for the production of goods and services are called Factors of Production. The three basic factors of production within an economy are: 1) Labor 2) Land 3) Capital.

Labor: The time, energy, knowledge and skills needed for production. EXAMPLE: A bicycle shop has an employee to assemble new bikes, employee represents the LABOR used in the economy.

Land: The natural resources needed to produce the goods and services. Resources include- Soil, minerals, water, timber, fish and wildlife, and energy sources. EXAMPLE: A concrete company requires large amounts of water, stone, and cement.

Capital: Anything produced in an economy that is used to produce other goods and services.

Two types:

1. Capital Goods- tools, machines, and buildings used to produce goods and services. EXAMPLE: The warehouse and molding machines used to produce plastic toys.

2. Financial Capital- Money available for investing or spending. EXAMPLE: Money used to buy the molds for the machines

Production, Distribution, and Consumption

Once a business has decided to provide a specific good or service to satisfy the wants of the people, production occurs. Production requires the combination of land, labor, and capital to create the product or service.

Distribution follows the production of a product or service. Distribution enables the product or service to be accessible to customers. EXAMPLE:

Semi trucks deliver the products to stores.The final step is

consumption- the act of buying or using goods and services.

The Want-Satisfaction Chain (pg. 290)

1. Human WantsPeople want good pizza at a reasonable price

2. Land, Labor, & CapitalLand: Vegetables, grain for dough, tomato sauceLabor: Employees to make and deliverpizzas Capital: Building, ovens, pizza cutters, phones, boxes

3. Production (Land, Labor, and Capital) Dough, sauce, and toppings form a pizza at the hands of the employee. Pizzas are baked in ovens, cut into slices, and placed in boxes.

A Pizza Shop

4. Goods/Services Finished pizzas made to order

5. DistributionPizzas are either delivered directly to the customer or picked up at the pizza shop.

6. ConsumptionPizzas are purchased by customers using cash or credit card.

7. Want SatisfactionCustomer’s want for pizza is satisfied.

The Want-Satisfaction Chain (pg. 290) Pizza Shop

Making Choices

There are never enough resources to produce all the goods and services people want. Producers must decide which goods and services to provide.

EXAMPLE: A company can either produce tractors or trucks, but not both. People must make choices on which wants to satisfy. Do they buy a new pair of shoes or jeans? Participation Guide #6 (What choice as a consumer did you make this weekend?)

Benefits and Costs An essential element in making a

choice is examining the benefits gained and opportunity costs lost as a result of the decision. The benefit is what is gained as a result of the decision. The Opportunity Cost is

what is given up when a resource is used for one purpose instead of the next best alternative.

EXAMPLE: After school you have a 3 hour period of free time. You have the option of getting a part time job or playing a sport. You have decided to get a job at a local pizza shop. The benefit from the decision is MONEY. The Opportunity Cost (Benefit lost) is experiencing team camaraderie.

Participation Guide #7 (What was the opportunity of cost of a decision made this past week).

Scarcity

Scarcity results from resources not being able to accommodate all of the wants people have.

Scarcity exists in every society, both rich and poor. EXAMPLE: The amount of quality farm land available in Japan to is not able to meet the demands for the amount of food the people want. In the U.S. some communities have a limited amount of land for the development of residential and shopping areas.

Choices About Resource Use

When a decision is made to use resource to produce one type of goods and services, at the same time, a decision not to use the same resource to produce something else is also made. EXAMPLE: A Bakery specializes in making only cupcakes rather than wedding cakes. Or land is used to build a neighborhood rather than farming.

Choices regarding the use of resources occur at every level.

Individuals choose to use money and time for one purpose over another.

In large economies car companies with a limited amount of factories, machines, and labor force must decide which model to produce and how many.

The Federal government makes choices regarding financial resources when determining a budget. They make decisions to invest in a national defense system or in providing additional funding for schools.

No matter who is making the economic decisions, they are all concerned with how to use the limited resources to produce goods and services to satisfy people’s unlimited wants.