2. 1 Chapter Introduction 1 Economics and You The study of economics will help you become a better decision maker – it helps you develop a way of thinking about how to make the best choices for you. Click the Speaker button to listen to Economics and You.

3. 2 Key Terms –economics  –need  –want  –factors of production  –land  –capital  –financial capital  –scarcity  Section 1-2 Study Guide (cont.) Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 5 of your textbook. –labor  –entrepreneur  –production  –Gross Domestic Product (GDP)

4. 3 Section 1-5 Click the mouse button or press the Space Bar to display the information. The Fundamental Economic Problem Whether they are rich or poor, most people seem to want more than they already have.  The fundamental economic problem facing all societies is that of scarcity.  Scarcity is the condition that results from society not having enough resources to produce all the things people would like to have.

5. 4 Section 1-6 Click the mouse button or press the Space Bar to display the information. The Fundamental Economic Problem (cont.) Scarcity affects almost every decision we make.  Economics is the study of how people try to satisfy wants and needs through the careful use of relatively scarce resources. Figure 1.1

6. 5 Section 1-7 Click the mouse button or press the Space Bar to display the information. Needs and Wants Economists often talk about people’s needs and wants.  –A need is a basic requirement for survival and includes food, clothing, and shelter.  –A want is a way of expressing a desire for something you don’t need.

7. 6 Section 1-8 Click the mouse button or press the Space Bar to display the information. “There Is No Such Thing as a Free Lunch” Virtually everything we do has a cost–even when it seems as if we are getting something “for free.”  Unfortunately, most things in life are not free because someone has to pay for the production in the first place.  Economic educators use the term TINSTAAFL to describe this concept.  In short, this term means that There Is No Such Thing As A Free Lunch.

8. 7 Section 1-9 Click the mouse button or press the Space Bar to display the information. Three Basic Questions Because we live in a world of relatively scarce resources, we have to make wise economic choices.  In so doing, we make decisions about the ways our limited resources will be used. To make these decisions, we must answer 3 questions. Figure 1.1

9. 8 Section 1-10 Click the mouse button or press the Space Bar to display the information. WHAT to Produce The first question is that of WHAT to produce.  A society cannot have everything its people want, so it must decide WHAT to produce.

10. 9 Section 1-11 Click the mouse button or press the Space Bar to display the information. HOW to Produce A second question is that of HOW to produce.  Should factory owners use mass production methods that require a lot of equipment and few workers, or should they use less equipment and more workers?

11. 10 Section 1-12 Click the mouse button or press the Space Bar to display the information. FOR WHOM to Produce The third question deals with FOR WHOM to produce.  After a society decides WHAT and HOW to produce, the things produced must be allocated to someone.  These questions concerning WHAT, HOW, and FOR WHOM to produce are not easy for any society to answer.

12. 11 Section 1-13 Click the mouse button or press the Space Bar to display the information. The Factors of Production The reason people cannot satisfy all their wants and needs is the scarcity of productive resources.  The factors of production, or resources required to produce the things we would like to have, are land, capital, labor, and entrepreneurs.

13. 12 Section 1-14 The Factors of Production (cont.) All four factors of production are required if goods and services are to be produced. Figure 1.2  Click the mouse button or press the Space Bar to display the information.

14. 13 Section 1-15 Click the mouse button or press the Space Bar to display the information. Land In economics, land refers to the “gifts of nature,” or natural resources not created by humans.  Economists tend to think of land as being fixed, or in limited supply.  Because the supply of a productive factor like land is relatively fixed, the problem of scarcity is likely to become worse as population grows in the future.

15. 14 Section 1-16 Click the mouse button or press the Space Bar to display the information. Capital Another factor of production is capital – the tools, equipment, machinery, and factories used in the production of goods and services.  Such items also are called capital goods to distinguish them from financial capital, the money used to buy the tools and equipment used in production.  Capital is unique in that it is the result of production.

16. 15 Section 1-17 Click the mouse button or press the Space Bar to display the information. Labor A third factor of production is labor – people with all their efforts, abilities, and skills.  This category includes all people except for a unique group of individuals called entrepreneurs.  Unlike land, labor is a resource that may vary in size over time.

17. 16 Section 1-18 Click the mouse button or press the Space Bar to display the information. Entrepreneurs Some people are special because they are the innovators responsible for much of the change in our economy.  Such an individual is an entrepreneur, a risk-taker in search of profits who does something new with existing resources.  They provide the initiative that combines the resources of land, labor, and capital into new products.

18. 17 Section 1-19 Production When all factors of production are present, production, or the process of creating goods and services, can take place.

19. 18 Section 1-Assessment 2 Section Assessment (cont.) Describe the fundamental economic problem. Scarcity, the condition that results from society not having enough resources to produce all the things people want, is the fundamental economic problem. Click the mouse button or press the Space Bar to display the answer.

20. 19 Section 1-Assessment 3 Section Assessment (cont.) List the three basic economic questions every society must answer. Every society must ask WHAT to produce, HOW to produce, and FOR WHOM to produce. Click the mouse button or press the Space Bar to display the answer.

21. 20 Section 1-Assessment 4 Section Assessment (cont.) Describe the factors of production. The factors of production are land, capital, labor, and entrepreneurs. Click the mouse button or press the Space Bar to display the answer.

22. 21 Section 1-Assessment 7 Section Assessment (cont.) Synthesizing Information Give an example of a supposedly “free” item that you see every day. Explain why the item is not really free by stating who or what actually pays for it.

23. End of Section 1 Click the mouse button to return to the Contents slide.

24. 23 Section 2-5 Click the mouse button or press the Space Bar to display the information. Goods, Services, and Consumers Economics is concerned with economic products – goods and services that are useful, relatively scarce, and transferable to others.  Because of these characteristics, economic products command a price.

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26. 25 Section 2-6 Click the mouse button or press the Space Bar to display the information. Goods The first type of economic product is a good – an item that is economically useful or satisfies an economic want.  –A consumer good is intended for final use by individuals.  –When manufactured goods are used to produce other goods and services, they are called capital goods.  –Any good that lasts three years or more when used on a regular basis is called a durable good.  –A nondurable good is an item that lasts for less than three years when used on a regular basis.

27. 26 Section 2-7 Click the mouse button or press the Space Bar to display the information. Services The other type of economic product is a service, or work that is performed for someone.  The difference between a good and a service is that a service is intangible, or something that cannot be touched.

28. 27 Section 2-8 Click the mouse button or press the Space Bar to display the information. Consumers The consumer is a person who uses goods and services to satisfy wants and needs.  As consumers, people indulge in consumption, the process of using up goods and services in order to satisfy wants and needs.

29. 28 Section 2-9 Click the mouse button or press the Space Bar to display the information. Value, Utility, and Wealth In economics, value refers to a worth that can be expressed in dollars and cents.  Why, however, does something have value, and why are some things worth more than others?

30. 29 Section 2-10 Click the mouse button or press the Space Bar to display the information. Paradox of Value At first, early economists were puzzled by a contradiction between necessities and value called the paradox of value.  The paradox of value is the situation where some necessities, such as water, have little monetary value, whereas some non- necessities, such as diamonds, have a much higher value.  Economists knew that scarcity is required for value.  The problem was that scarcity by itself is not enough to create value.

31. 30 Section 2-11 Click the mouse button or press the Space Bar to display the information. Utility It turned out that for something to have value, it must also have utility, or the capacity to be useful and provide satisfaction.  The utility of a good or service may vary from one person to the next.  A good or service does not have to have utility for everyone, only utility for some.  For something to have value it must be scarce and have utility.  This is the solution to the paradox of value.

32. 31 Section 2-12 Click the mouse button or press the Space Bar to display the information. Wealth Wealth, in an economic sense, is the accumulation of those products that are tangible, scarce, useful, and transferable from one person to another.  While goods are counted as wealth, services are not because they are intangible.  However, this does not mean that services are not useful as they may be the source of wealth.

33. 32 Section 2-18 Click the mouse button or press the Space Bar to display the information. Productivity Everyone benefits when scarce resources are used efficiently.  This is described by the term productivity, which is a measure of the amount of output produced by a given amount of inputs in a specific period of time.  Productivity goes up whenever more output can be produced with the same amount of inputs in the same amount of time.  Productivity is often discussed in terms of labor, but it applies to all factors of production.

34. 33 Section 2-19 Click the mouse button or press the Space Bar to display the information. Division of Labor and Specialization Division of labor and specialization can improve productivity.  In regional specialization, different regions of the country often specialize in the things they can produce best. Blueberries –Division of labor takes place when work is arranged so that individual workers do fewer tasks than before.  –Specialization takes place when factors of production perform tasks that they can do relatively more efficiently than others. 

35. 34 Section 2-21 Click the mouse button or press the Space Bar to display the information. Investing in Human Capital (cont.) Investments in education can have substantial payoffs.  Figure 1.4

36. 35 Section 2-23 Click the mouse button or press the Space Bar to display the information. Economic Interdependence The American economy has a remarkable degree of economic interdependence.  This means that we rely on others, and others rely on us, to provide the goods and services that we consume.  Events in one part of the country or the world often have a dramatic impact elsewhere.  We need to understand how all the parts fit together, which is one reason why we study economics.

37. 36 Section 2-Assessment 5 Section Assessment (cont.) Making Comparisons What is the difference between a durable good and a nondurable good? A durable good lasts three or more years when used on a regular basis. A nondurable good lasts for less than three years. Click the mouse button or press the Space Bar to display the answer.

38. End of Section 2 Click the mouse button to return to the Contents slide.

39. 38 Section 3-9 Click the mouse button or press the Space Bar to display the information. Production Possibilities A popular model economists use to illustrate the concept of opportunity cost is the production possibilities frontier.  This is a diagram representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed.  A classic example is a mythical country called Alpha which produces two goods– guns and butter.

40. 39 Section 3-10 Click the mouse button or press the Space Bar to display the information. Identifying Possible Alternatives Even though Alpha only produces two goods, the country has a number of alternatives available to it.  This is why the figure is called a production “possibilities” frontier. Figure 1.6 The Production Possibilities Frontier

41. 40 Section 3-11 Identifying Possible Alternatives (cont.) Eventually though, Alpha will have to settle on a single combination because its resources are limited. Figure 1.6 The Production Possibilities Frontier

42. 41 Section 3-12 Click the mouse button or press the Space Bar to display the information. Fully Employed Resources All points on the curve represent maximum combinations of output possible if all resources are fully employed.  As long as all resources are fully employed, however, there are no extra resources to produce extra quantities of guns or butter. Figure 1.6 The Production Possibilities Frontier

43. 42 Section 3-13 Fully Employed Resources (cont.) The figure is called a production possibilities “frontier” to indicate the maximum combinations of goods and/or services that can be produced. Figure 1.6 The Production Possibilities Frontier

44. 43 Section 3-14 Click the mouse button or press the Space Bar to display the information. Opportunity Cost Opportunity cost is a general concept that is expressed in terms of trade-offs, or in terms of things given up to get something else.  Opportunity cost is not always measured in terms of dollars and cents. Figure 1.6 The Production Possibilities Frontier

45. 44 Section 3-15 Click the mouse button or press the Space Bar to display the information. The Cost of Idle Resources If some resources were not fully employed, then it would be impossible for Alpha to reach its potential.  If Alpha was operating at point E, opportunity cost of the unemployed resources would be the 100 units of lost butter production. Figure 1.6 The Production Possibilities Frontier

46. 45 Section 3-16 Click the mouse button or press the Space Bar to display the information. The Cost of Idle Resources (cont.) Production at point E could be the result of other idle resources, such as factories or land that are available but are not being used.  As long as some resources are idle, the country cannot produce on its frontier. Figure 1.6 The Production Possibilities Frontier

47. 46 Section 3-17 Click the mouse button or press the Space Bar to display the information. Economic Growth The production possibilities frontier represents potential output at a given point in time.  Eventually, however, population may grow, the capital stock may grow, and productivity may increase. Figure 1.6 The Production Possibilities Frontier

48. 47 Section 3-18 Click the mouse button or press the Space Bar to display the information. Economic Growth (cont.) If this happens, then Alpha will be able to produce more in the future than it can today.  Economic growth causes the production possibilities frontier to move outward. Figure 1.6 The Production Possibilities Frontier

49. 48 Section 3-19 Click the mouse button or press the Space Bar to display the information. Thinking Like an Economist Economists study how people satisfy seemingly unlimited and competing wants with the careful use of scarce resources.  They are also concerned with strategies that will help us make the best choices.

50. 49 Section 3-22 Click the mouse button or press the Space Bar to display the information. Employ Cost-Benefit Analysis Most economic decisions can be made by using cost-benefit analysis, a way of thinking about a problem that compares the costs of an action to the benefits received.  Businesses choose to invest in projects which give the highest return per dollar spent.  State and local governments also use cost- benefit analysis to evaluate the effectiveness of public programs.

51. 50 Section 3-23 Click the mouse button or press the Space Bar to display the information. Take Small, Incremental Steps Finally, and whenever possible, it also helps to make decisions by taking small, incremental steps toward the final goal.  This is especially valuable whenever we are unsure of the exact, or total, cost involved.  If the cost turns out to be larger than we anticipated, then the resulting decision can be reversed, without too much being lost.  Few decisions are all-or-nothing decisions– sometimes it helps to do a little bit at a time.

52. 51 Section 3-24 Click the mouse button or press the Space Bar to display the information. The Road Ahead Economics includes the study of how things are made, bought, sold, and used.  It provides insight as to how the economy works on a daily basis.  It also provides a more detailed understanding of a free enterprise economy.  This is one in which consumers and privately owned businesses, rather than the government, make the majority of the WHAT, HOW, and FOR WHOM decisions.

53. 52 Section 3-Assessment 5 Section Assessment (cont.) Opportunity Costs Identify several possible uses of your time that will be available to you after school today. What will you actually do, and what will be the opportunity cost of your decision? Explain how your decision will or will not affect your friends and members of your family.

54. End of Section 3 Click the mouse button to return to the Contents slide.

55. End of Chapter Summary Click the mouse button to return to the Contents slide.

56. 55 ___Economic products designed to satisfy people’s wants and needs are called _____. ___The _____ of a CD player can be expressed in dollars and cents. ___Haircuts, repairs to home appliances, and entertainment are examples of _____. Click the mouse button or press the Space Bar to display the answer. The Chapter Assessment is on pages 28–29. Chapter Assessment 1 Identifying Key Terms Choose the letter of the term that best completes the following sentences. B J I A. capital goods F.human capital B. consumer goods G.opportunity cost C. consumers H.scarcity D. factors of production I.services E. utilityJ.value

57. 56 Chapter Assessment 2 Click the mouse button or press the Space Bar to display the answer. Identifying Key Terms (cont.) ___ _____ arises because society does not have enough resources to produce all the things people would like to have. ___The _____ of going to a football game instead of working would include the money not earned at your job. ________ is the sum of the skills, abilities, health, and motivation of people. Choose the letter of the term that best completes the following sentences. H G F A. capital goods F.human capital B. consumer goods G.opportunity cost C. consumers H.scarcity D. factors of production I.services E. utilityJ.value

58. 57 Chapter Assessment 3 Click the mouse button or press the Space Bar to display the answer. Identifying Key Terms (cont.) ________ is another name for the capacity of a product to be useful. ___ The only factors of production that are themselves the result of earlier production are _____. ___ Land, capital, labor, and entrepreneurs are _____. ___ People who use goods and services to satisfy their wants and needs are called _____. E A D C A. capital goods F.human capital B. consumer goods G.opportunity cost C. consumers H.scarcity D. factors of production I.services E. utilityJ.value Choose the letter of the term that best completes the following sentences.

59. 58 Chapter Assessment 4 Click the mouse button or press the Space Bar to display the answer. Identify the cause of scarcity. having only limited resources to meet seemingly unlimited wants Reviewing the Facts

60. 59 Chapter Assessment 5 Click the mouse button or press the Space Bar to display the answer. List the three basic economic questions that every society must face. WHAT to produce? HOW to produce? FOR WHOM to produce? Reviewing the Facts (cont.)

61. 60 Chapter Assessment 6 Click the mouse button or press the Space Bar to display the answer. Reviewing the Facts (cont.) Describe the factors of production required to deliver a service like education. land; land itself and natural resources; capital: school building, computers, financial capital; labor: teachers, other workers, publishers; entrepreneurs: people who devise new products and methods of delivery of educational material.

62. 61 Chapter Assessment 13 Click the mouse button or press the Space Bar to display the answer. Reviewing the Facts (cont.) Identify the economic concept illustrated by the production possibilities frontier. opportunity cost

63. 62 Chapter Assessment 15 Click the mouse button or press the Space Bar to display the answer. Reviewing the Facts (cont.) Explain why economic education is important. It helps people become better decision makers.

64. 63 Chapter Assessment 18 Click the mouse button or press the Space Bar to display the answer. Applying Economic Skills Scarcity What three choices must a society make because of scarcity? WHAT to produce? HOW to produce? FOR WHOM to produce?

65. 64 Chapter Assessment 21 Suppose that scientists invented a car that ran efficiently on water. Explain, in terms of scarcity, how this might affect the price of water. Explain, in terms of utility, how this might affect the price of gasoline. The more water that is needed, the scarcer it becomes, and so the price of water might go up. The less gasoline that is needed, the less utility it has, and so the price of gasoline might go down. Click the mouse button or press the Space Bar to display the answer.

66. End of Chapter Assessment Click the mouse button to return to the Contents slide.

67. End of Slide Show Click the mouse button to return to the Contents slide.