Chapter 1 Economics The study of how people try to satisfy seemingly unlimited & competing wants through the careful use of relatively scarce resources.

The Fundamental Economic Problem Scarcity Society’s problem of not having enough resources to meet people’s unlimited wants. Need v. Want Need is something required for survival (food, clothing, shelter). Want is something you would like to have but isn’t necessary for survival. TINSTAAFL “There Is No Such Thing As A Free Lunch”

3 Basic Economic Questions What to Produce? How to Produce? For Whom to Produce?

4 Factors of Production Land Capital Labor Entrepreneurs “natural resources” Capital “capital goods”: tools, equipment, machinery & factories used Labor The people that make up the Work force minus Entrepreneurs Entrepreneurs Innovator or risk taker who does something new with existing resources. Brings new products to the market. Worksheet

Key Economic Terms Good: (Definition, then types of Goods…) Service: Tangible (real, by touch) economic product that is useful, relatively scarce, & transferable to others. Consumer Good: Good intended for final use by consumers rather than businesses Durable Good: Good that lasts for at least 3 years when used regularly Non-Durable Good: Good that wears out or lasts fewer than 3 years Service: Work or labor performed by someone Worksheet

Key Economic Terms cont. Value: Monetary worth of a good or service as determined by the market. Paradox of Value: The contradiction between the high monetary value of a non-necessary item & the low value of an essential item. Diamond v. Water Utility: Ability / capacity of a good or service to be useful &/or give satisfaction to someone.

Circular Flow Model pg. 15 Draw this & label/define the markets

Economic Interdependence This means that we rely on others, & others rely on us, to provide most of the goods & services we consume. As a result, events in one part of the world often have a dramatic impact elsewhere.

Trade Offs & Opportunity Cost pg. 20 Every decision we make has its trade-offs, or alternative choices. When you make an economic decision (a choice) opportunity cost are incurred. Trade-Offs Alternative choice (options) Opportunity Cost The value/utility of what you give up when you make a choice (the cost/usefulness of the next best alternative).

Production Possibilities The various combination of goods and services that an economy can choose to produce. When an economy is operating at full capacity it is operating at maximum production. This is also known as the production possibilities frontier. Production possibilities help us understand the concept of opportunity cost.

Production Possibilities Curve Open your textbook to page 21 We are going to discuss Figure 1.6 You probably want to draw it in your notes as I draw it on the board… If you want to practice on the whiteboard first, that’s fine Make sure you label what each point represents

Understanding the Graphs If you are operating at maximum production, the only way to produce something new you must give up the production of another item. If you have economic growth you can push the curve outward allowing for more total production. (Population Growth, Improving Technology, or growth in the Capital Stock which are investments in factories, etc.) If you have idle resources (operating inside the curve) you will be able to produce more of both without giving up production b/c it is NOT at full production.

Production Possibilities Curve

Economic Growth

Economic Growth