economics – what is it? 1. economics—what is it? social science—why? because it deals with...
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Economics – What is it?Economics – What is it?
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Economics—What is it?Economics—What is it? Social science—why? Because it deals Social science—why? Because it deals
with people and their choices.with people and their choices.
Definition:Definition:Economics is the study of markets. It Economics is the study of markets. It looks at ways to use scarce resources to looks at ways to use scarce resources to produce goods and services, and then produce goods and services, and then distributes those goods and services to distributes those goods and services to the population.the population.
A simpler definition:A simpler definition:
Economics is the study of making Economics is the study of making necessary choices.necessary choices.
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The Fundamental Economic The Fundamental Economic ProblemProblem
The fundamental economic problem The fundamental economic problem facing all societies is that of scarcity.facing all societies is that of scarcity.
Definition:Definition:
Scarcity is the condition that results Scarcity is the condition that results from society not having enough from society not having enough resources to produce all the things resources to produce all the things people would like to have.people would like to have.
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The Economic ProblemThe Economic Problem
Scarcity exists because human wants Scarcity exists because human wants are unlimited and resources are finite are unlimited and resources are finite (limited)(limited)
Finite resources restrict the ability to Finite resources restrict the ability to produce.produce.
What are resources?What are resources?44
Factors of ProductionFactors of Production
Resources are things we need to Resources are things we need to make other products. They are our make other products. They are our FACTORS OF PRODUCTION.FACTORS OF PRODUCTION.
Definition:Definition:
Production—process of creating goods Production—process of creating goods and services—takes place when all and services—takes place when all needed factors of production are needed factors of production are available.available.
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Factors of ProductionFactors of Production
Factors of Production are land, labor and Factors of Production are land, labor and capital.capital.
Definition:Definition:
Land refers to “gifts of nature,” or natural Land refers to “gifts of nature,” or natural resources not created by humans. This resources not created by humans. This includes land, forests, mineral deposits, includes land, forests, mineral deposits, livestock, sunshine, climate, etc.livestock, sunshine, climate, etc.
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Factors of ProductionFactors of Production
Definition:Definition:
Labor is people, their time, skill, Labor is people, their time, skill, efforts, and abilities used to produce efforts, and abilities used to produce a good or service. An example is a good or service. An example is people’s ability to work.people’s ability to work.
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Factors of ProductionFactors of Production
Definition:Definition:
Capital is the tools, equipment, Capital is the tools, equipment, machinery, and factories used in the machinery, and factories used in the production of goods and services. production of goods and services. This includes any equipment used to This includes any equipment used to make something else like a make something else like a bulldozer, a computer, and even bulldozer, a computer, and even money (known as financial capital).money (known as financial capital).
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Factors of ProductionFactors of Production
These factors of production must be These factors of production must be present for production to begin.present for production to begin.
Definition:Definition:
Production is the process of creating Production is the process of creating goods and services and production goods and services and production will take place only when all needed will take place only when all needed factors of production are available.factors of production are available.
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Three Basic QuestionsThree Basic Questions
Because we live in a world of Because we live in a world of relatively scarce resources, we have relatively scarce resources, we have to make wise economic choices. to make wise economic choices. Each society must answer these Each society must answer these three basic questions to make three basic questions to make decisions about the ways our limited decisions about the ways our limited resources will be used.resources will be used.
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Three Basic QuestionsThree Basic Questions WHAT to produce?WHAT to produce?
--military equipment or other items --military equipment or other items such as food, clothing, or housing?such as food, clothing, or housing?
HOW to produce?HOW to produce?--mass production methods that --mass production methods that require a lot of equipment and few require a lot of equipment and few people or should they use less people or should they use less equipment and more workers?equipment and more workers?
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Three Basic QuestionsThree Basic Questions
FOR WHOM to produce?FOR WHOM to produce?
--once the society knows what and --once the society knows what and how it is producing, these goods and how it is producing, these goods and services must be allocated to services must be allocated to someone. How do they decide who someone. How do they decide who gets what?gets what?
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