1. Chapter 1: What is Economics? Section 1

2. Objectives Explain why scarcity and choice are the basis of economics.
Describe what entrepreneurs do.
Define the three factors of production and the differences between physical and human capital.
Explain how scarcity affects the factors of production.

3. Key Terms need: something essential for survival
want: something that people desire but that is not necessary for survival
goods: the physical objects that someone produces
services: the actions or activities that one person performs for another
scarcity: the principle that limited amounts of goods and services are available to meet unlimited wants

4. Key Terms, cont.
economics: the study of how people seek to satisfy their needs and wants by making choices
shortage: a situation in which consumers want more of a good or service than producers are willing to make available at particular prices
entrepreneur: a person who decides how to combine resources to create goods and services
factors of production: the resources that are used to make goods and services

5. Key Terms, cont.
land: all natural resources used to produce goods and services
labor: the effort people devote to tasks for which they are paid
capital: any human-made resource that is used to produce other goods and services
physical capital: the human-made objects used to create other goods and services
human capital: the knowledge and skills a worker gains through education and experience

6. Introduction How does scarcity force people to make economic choices?
Scarcity forces all of us to make choices by making us decide which options are most important to us.
The principle of scarcity states that there are limited goods and services for unlimited wants. Thus, people need to make choices in order to satisfy the wants that are most important to them.
Purpose of this activity is to help you to become familiar with the three economic terms: Scarcity, productive resources, and opportunity costs.
scarcity: the principle that limited amounts of goods and services are available to meet unlimited wants and needs
Productive resources (factors of production): land, labor, capital – resources used to make goods and services
Opportunity costs – the most desirable alternative (trade-off) given up as a result of a decision.
Trade-off: The act of giving up one benefit in order to gain another, greater benefit
Production Possibilities Curve: A graph that shows alternative ways to use an economy’s productive resources

7. Scarcity and Choice Activity
Purpose of this activity is to help you to become familiar with the three economic terms: Scarcity, productive resources, and opportunity costs.

8. Scarcity
scarcity: the principle that limited amounts of goods and services are available to meet unlimited wants and needs

9. Factors of Production/Production Resources
Productive resources (factors of production): land, labor, capital – resources used to make goods and services

10. Trade-offs and Opportunity Costs
Trade-off: The act of giving up one benefit in order to gain another, greater benefit
Opportunity costs – the most desirable alternative (trade-off) given up as a result of a decision.

11. Production Possibilities Curve
Production Possibilities Curve: A graph that shows alternative ways to use an economy’s productive resources

12. Scarcity and Choice
People satisfy their needs and wants with goods and services.
People’s needs and wants are unlimited, yet goods and services are limited.

13. Scarcity and Choice, cont.
Economics begins with the idea that people cannot have everything they need and want.
The fact that limited amounts of goods and services are available to meet unlimited wants is called scarcity.
Scarcity forces people to make choices but it is not the same as a shortage.
Shortages are temporary while scarcity always exists.
Scarcity is a constant condition that always exists, unlike a shortage
There are simply not enough productive resources(land, labor and capital) with which to produce all of the goods and services needed and wanted.
The problem of scarcity cannot be solved quickly therefore it is considered to be a permanent condition.
Remember, things like technological advancement, exploration, establishing trade agreements and population shifts can take years even decades to achieve. These increases can’t keep up with the growth in population.
Shortages are temporary and are directly related to price and profits. We’ll learn more in Chapters 6 and 7. (price and wage freezes, oligopolies and monopolies)
Occurs when consumers want more of a good than producers are willing to make available at a particular price.

14. Entrepreneurs
Entrepreneurs play a key role in turning scarce resources into goods and services.
Entrepreneurs are willing to take risks in order to make a profit. They:
Develop original ideas
Start businesses
Create new industries
Fuel economic growth
Combine resources to create new products and services.
Risk takers - Motivated by profit
Anyone who starts a new business is an entrepreneur
Believe they can compete with others because of new ideas in marketing, improvement in production methods, location, forecasting of increased demand,

15. Entrepreneurs, cont
An entrepreneur’s first task is to assemble the factors of production: land, labor, and capital.

16. Factors of Production: Land
Land refers to all natural resources used to produce goods and services.
These resources include:
Fertile land for farming
Oil
Coal
Iron
Water
Forests

17. Factors of Production: Labor
Labor is the effort people devote to tasks for which they are paid.
Labor includes:
The medical care provided by a doctor
The classroom instruction provided by a teacher
The tightening of a bolt by an assembly-line worker
The creation of a painting by an artist
The repair of a television by a technician

18. Factors of Production: Capital
Capital refers to any human-made resource that is used to produce other goods and services.
An economy requires both physical and human capital to produce goods and services.
Physical capital includes:
Buildings
Equipment
Tools
Human capital includes:
A college education
Training
Job experience
Ask students to look at page 7, Question #7 to identify factor of production.

19. Benefits of Capital
Capital is a key factor of production because people and companies can use it to save a great deal of time and money.
The benefits of capital include:
Increased efficiency
Increased knowledge
Better time management
Increased productivity
What physical capital did farmers use to use to till the land?
What new invention was created that allow farmers to grow more crops?
Entrepreneurs whose ideas leading up to the Industrialization of the North and the Industrial Revolution
Eli Whitney’s - cotton gin and musket
Henry Ford’s - automobiles to be produced in a factory?
assembly line using interchangeable parts
If time, have students consider question #8 on page 7.

20. Scarce Resources Checkpoint: Why are goods and services scarce?
All goods and services are scarce because the resources used to produce them are scarce.
There are only so many natural resources available to produce particular goods.
Checkpoint Answer: because the resources used to produce them are scarce

21. Scarce Resources, cont.
The amount of labor available to produce goods and services can be limited.
Physical capital is also limited for many industries.
Each resource may also have alternative uses. Individuals, businesses, and governments have to choose which alternative they want most.

22. Review
Now that you have learned how scarcity forces people to make economic choices, go back and answer the Chapter Essential Question.
How can we make the best economic choices?