Chapter 1: What is Economics?

Chapter 1 Sec 1 Scarcity and the factors of production How does scarcity force people to make economic decisions?

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.

What is Economics? At its most basic level economics is the study of how people make choices when they face a limited supply of resources. Which movie to see? How many hours to study? What to eat?

Scarcity and Choice The study of economics begins with the idea that people cannot have everything they NEED AND WANT A need is something like air, food or shelter that is necessary for survival A want is an item that we desire but that is not essential to survival, such as an sports car or a video game.

NEED A NEED IS SOMETHING LIKE AIR, FOOD, OR SHELTER THAT IS NECESSARY FOR SURVIVAL

A WANT IS AN ITEM THAT WE DESIRE BUT THAT IS NOT ESSENTIAL TO SURVIVAL

Why must people make such choices? BECAUSE PEOPLE CANNOT HAVE EVERYTHING THEY NEED OR WANT, THEY MUST CONSIDER THEIR OPTIONS & DECIDE WHICH CHOICE FILL THEIR NEEDS BEST. ECONOMICS is the study of how people seek to satisfy their needs & wants by making choices. Why must people make such choices? The reason is SCARCITY

SCARCITY The principle that limited amounts of goods and services are available to meet unlimited wants. It is hard for people in a wealthy country to really understand the idea of scarcity. Our states are filled with goods and we have access to countless services.

GOOD AND SERVICES GOODS are physical objects that someone produces such as clothes and shoes. SERVICES are actions or activities that one person performs for another.

All goods and services we produce are scarce. No one person can have an endless supply of everything. Sooner or later, a limit is always reached. At its core economics is about solving the problem of scarcity

Scarcity is not the same as shortage. Scarcity in contrast always exists because our needs and wants are always greater than our resource supply SHORTAGE is a situation in which consumers want more of a good or services than producers are willing to make available at a particular price. This can be short term or long term During certain parts of the year you might see empty shelves for certain items, but soon the shelves are stocked Wars and weather (drought, freezing temps) can also create shortages

THREE FACTORS OF PRODUCTION Economists call the resources that are used to make all goods & services the FACTORS OF PRODUCTION. They are land, labor, & capital.

THREE FACTORS OF PRODUCTION LAND refers to all natural resources used to produce goods & services. They include fertile land for farming and products there are in or on the land, such as coal, water and forests.

Labor Labor is the effort that a person devotes to a task for which that person is paid. Labor includes the medical aid provided by a doctor, the tightening of a clamp by an assembly line worker, or the instructions of a teacher.

Three Factors of Production CAPITAL is any human made resources that is used to produce other goods & services Physical capital all human made goods that are used to produce other goods & services. Includes buildings and tools It is an important factor of production because it can save people & companies a great deal of time & money When we create or buy physical capital to accomplish a job, we usually become more productive

Three Factors of Production The benefits that you reap from this object will lower the cost of the product The typical benefits of physical capital are: Extra time used for other activities More knowledge understanding how to use technology More productivity can use your resources & labor to do additional activities that are beneficial

THREE FACTORS OF PRODUCTION Human Capital the skills and knowledge gained by a worker through education & experience An economy requires both to produce goods & services

ENTREPRENEURS This is the group that pulls the 3 factors of production together Ambitious leader who combines land, labor, and capital to create and market new goods and services. They are individuals who take risks to develop original ideas, start businesses, create new industries, and fuel economic growth.

ENTRPRENEURS

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

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

Entrepreneurs, cont