1. What is Economics?
Chapter 1

2. What is Economics?
Economics is about how people choose to use scarce resources to satisfy their needs and wants i.e. achieve goals

3. Needs vs. Wants
Needs
Wants
Something like air, food or shelter that is necessary for survival
An item we desire but that is not essential to survival

4. Needs vs. Wants
Are these needs or wants?

5. Needs vs. Wants
Are these needs or wants?

6. Goods
The products created on Aquarius Island are goods. Goods are physical objects such as clothes or shoes.

7. Services
Services are actions that one person performs for another

8. All Resources are Scarce
All resources, especially on Aquarius Island are scarce. Scarcity is limited resources to meet unlimited wants.

9. Scarcity vs. Shortage
A shortage is a situation in which a good or service is unavailable. Sometimes a producer cannot or will not offer a good or service.
Shortages are temporary
Goods are scarce because resources are scarce. On your island, you did not have unlimited papaya because papaya is scarce.

10. Scarcity
Our resources are insufficient to achieve all our goals and all or wants
We cannot have everything we want
Using economic reasoning, i.e. making choices, we can get more from our resources

11. Factors of Production
Factors of production are the resources used to make goods and services (land, labor, capital, entrepreneur)

12. Factors of Production
Land is all natural resources used to make goods and services (land, coal, water, wood, etc.)

13. Factors of Production
Labor is the effort people devote to a task for which they are paid

14. Factors of Production
Capital is any human made resource that is used to produce other goods and services

15. Factors of Production
Physical Capital
Human Capital
Human made objects that create goods or services (buildings, tools, factories.) These things make us more productive
The knowledge or skills a worker gains through education and experience

16. Factors of Production
Entrepreneurship combines all resources to produce a new good or service

17. Factors of Production
Entrepreneur's are ambitious leaders who combines land and capital to create and market new goods and services

18. Guns or Butter
Guns or Butter- If a country decides to produce more military goods (guns) then they will have fewer resources to devote to consumer goods ex. Health care, education (butter) vs

19. Trade-offs vs. Opportunity Costs
Are an alternative we sacrifice when we make a decision
Individual trade-offs: Work more, play less
Business trade-offs: Produce more coconuts rather than papaya
Is the most desirable alternative given up as the result of a decision
Ex. You choose to make a life on Aquarius Island rather than try and escape

20. Thinking at the Margin
Thinking at the margin means deciding how much more or less to do. Usually we don’t stay up all night to build shelter. We build part of it one day and build part of it the next day, that way you can still sleep

21. Cost and Benefit at the Margin
With cost and benefit at the margin, you have to look at how decisions affect how much you spend and how much you gain
When you sacrifice more than you gain, no more units should be added

22. Efficiency and Productivity
Remember, the goal of an economy is to be efficient. Efficiency is when an economy uses it’s resources in such a way as to maximize the production of goods and services.
Efficiency means increasing productivity!

23. Production Possibilities
Economists often use graphs to help show data.
A Production Possibilities Curve shows alternative ways to use an economy’s productive resources.
The Production Possibilities Frontier is a line on the graph that shows the maximum possible output. Each point on the graph represents a trade off.

24. Production Possibilities
Using few resources than an economy is capable of using is underutilization

25. Production Possibilities
For every choice we make, there is a cost.
Law of Increasing Costs states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases.