Presentation on theme: "Chapter 1 The Economic Way of Thinking"— Presentation transcript:
1 Chapter 1 The Economic Way of Thinking Section 1The Basic Economic Problem
2 Chapter 1: The Economic Way of Thinking KEY CONCEPTScarcity is the situation that exists because wants are unlimited and resources are limited.WHY THE CONCEPT MATTERSThe concept of scarcity is an issue you confront in everyday life. Suppose you have $20 to cover the cost of lunches for the week. How would you use the money to cover your wants Monday through Friday? How would buying a late afternoon snack for $1 on two of the days affect your lunch choices?
3 Scarcity: The Basic Economic Problem Section-1Scarcity: The Basic Economic ProblemWhat Is Scarcity?KEY CONCEPTSWants — desires that can be met by consuming productsNeeds — things necessary for survivalScarcity — lack of resources available to meet all human wants not a temporary shortageEconomics — study of how people use resources to satisfy wants— examines how individuals and societies choose to use resources— organizes, analyzes, interprets data about economic behaviors— develops theories, economic laws to explain economy, predict future
4 What Is Scarcity? Principle 2: Scarcity Affects Everyone Principle 1: People Have WantsPeople make choices about all their needs and wantsWants are unlimited, ever changingPrinciple 2: Scarcity Affects EveryoneScarcity affects which goods and services are providedGoods — physical objects that can be boughtServices — work one person does for another for payConsumer — person who buys good or service for personal useProducer — person who makes a good or provides a service
5 Scarcity Leads to Three Economic Questions KEY CONCEPTSScarcity affects society and producers as well as individualsSociety must answer three basic economic questions:— what will be produced?— how will it be produced?— for whom will it be produced?
6 Scarcity Leads to Three Economic Questions Question 1: What Will Be Produced?Societies must decide on mix of goods to produce— depends in part on their natural resourcesSome countries allow producers and consumers to decideIn other countries, governments decideMust also decide how much to produce; choice depends on societies’ wantsQuestion 2: How Will It Be Produced?Decisions on production methods involve using resources efficiently— decisions influenced by a society’s natural resourcesSocieties adopt different approaches— with unskilled labor force, might use labor-intensive methods— with skilled labor force, might use capital-intensive methodsQuestion 3: For Whom Will It Be Produced?How goods and services are distributed involves two questions— how should each person’s share be determined?— how will goods and services be delivered to people?
7 The Factors of Production KEY CONCEPTSFactors of production — resources needed to produce goods and services— include land, labor, capital, entrepreneurship— supply is limited
8 The Factors of Production Factor 1: LandLand means all natural resources on or under the ground— includes water, forests, wildlife, mineral depositsFactor 2: LaborLabor is all the human time, effort, talent used to make products— physical and mental effort used to make a good or provide a serviceFactor 3: CapitalCapital is a producer’s physical resources— includes tools, machines, offices, stores, roads, vehicles— sometimes called physical capital or real capitalWorkers invest in human capital — knowledge and skills— workers with more human capital are more productiveFactor 4: EntrepreneurshipEntrepreneurship — vision, skill, ingenuity, willingness to take risksEntrepreneurs anticipate consumer wants, satisfy these in new ways— develop new products, methods of production, marketing or distributing— risk time, energy, creativity, money to make a profit
9 desires that can be met by consuming products Needs VocabularyWantsdesires that can be met by consuming productsNeedsThings necessary for survivalScarcitylack of resources available to meet all human wantsEconomicsstudy of how people use resources to satisfy wantsGoodphysical objects that can be boughtServiceswork one person does for another for payConsumerperson who buys good or service for personal useProducerperson who makes a good or provides a serviceFactors of Productioninclude land, labor, capital, entrepreneurshipLandmeans all natural resources on or under the ground
10 Vocabulary Labor Capital Entrepreneurship All the human time, effort, talent used to make productsCapitalA producer’s physical resourcesEntrepreneurshipvision, skill, ingenuity, willingness to take risks