What is Economics? Chapter 1

Essential Questions Chapter EQ: What is Economics? Section 1 EQ: Why can’t I have it all? Section 2 EQ: What’s the good in service? Section 3 EQ: What choices do we have?

1.1 Scarcity and the Science of Economics

1. The Fundamental Economic Problem A) Scarcity: unlimited wants and limited resources

So? What’s the point? B) Economics: The study of how people satisfy their wants with scarce resources.

C) Wants and Needs i. A Need is Required for Survival ii. A Want is a desire for satisfaction

Want or Need?

TINSTAAFL D) There’s no such thing as a free lunch! i. Someone has to pay for production cost! ii. This means that nothing is free

2. Three Basic Questions Q1. What must we produce? a: Society must choose based on its needs. Q2. How should we produce it? a: Society must choose based on it’s resources Q3. For whom should we produce it? a: Society must choose based on its population and other available markets.

Discussion Question How would the economic decisions of people living in Hawaii differ from people living in New York? Hawaii: New York: -Island -East coast of US -Tropical rain -Winters full of snow -Trades by boat -Trade by train, plane, and plane and trucks

3. Factors of Production These are the Resources that are necessary to produce what people want OR need.

A. Land Land is society’s limited natural resource.

B. Capital Tools, Money, Machinery, Equipment, and Factories B. Capital is the means by which something is produced. Tools, Money, Machinery, Equipment, and Factories

C. Labor C. Labors are the workers who apply their efforts, abilities, and skills to production

D. Entrepreneurs and Production 1.Entrepernuers: these are the people that take all of the FoP and combine them to make new products i. We also call them risk-takers 2. Production: creating goods and services Major FoP + Entrepreneurs = Production

Individual Question Please write your response in your notebook Why are entrepreneurs an economy’s driving force? They start new businesses and introduce new products. This can help or strengthen an economy.

4. The Scope of Economics Economics deals with the description of economic activity. i. GDP ii. Unemployment Rate iii. Government Spending iv. Tax Rates

B. Analysis looks at the why and how of economic activity. i. Why prices go up and down ii. How taxes effect saving C. Explanation refers to how economists communicate knowledge of the economy and it’s activities to society’s population D. Prediction refers to how yesterday’s and today’s economic activities advise us of potential future activity.

Why can’t I have it all? Scarcity! There is a difference between what we want and what we need. The reason we can’t have it all is because we face unlimited wants and limited resources. This means that there is a limit to what we can produce.

1.2 Basic Economic Concepts

1. Goods, Services, and Consumers Goods: They are tangible, economically useful and can satisfy an economic want. Services: Work that is performed for someone or something, and is intangible Consumers: Use G+S to satisfy their needs and wants.

Goods or Services? phone Cooking Computer Painting

2. Value, Utility, and Wealth Value is worth expressed in dollars and cents. Utility is a good’s or service’s capacity to provide satisfaction. This varies in with the needs and wants of each person. Wealth is the accumulation of goods. These goods are typically transferable.

Example Rich Guy Poor Family Value: $3,000 Utility: -- + Level of Wealth: High Low

3. Circular Flow of Economic Activity Markets are locations for buyers/sellers to trade. A Factor Market is where people earn their incomes. (jobs) A Product Market is where people use their income to buy from producers. (mall)

4. Productivity and Economic Growth Productivity is a measure of the amount of output produced by the amount of inputs within a given time. Specialization and division of labor can improve productivity. Investing in human capital improves productivity because a healthy, well trained person can be more productive. Economic growth depends on high productivity

1.2 EQ What’s the good in service? A good can be held and touched, it is tangible. A service is provided, it is an action. Each of these is necessary for economic growth, for fulfilling our unlimited wants and our needs.

1.3 Economic Choices and Decision Making

1. Trade-Offs and Opportunity Costs Trade-offs are the alternative choices people face in making an economic decision. Opportunity Costs are the next best alternative among a person’s choices

Group Discussion Should you go to college? Why? What do you gain? What do you give up? Which is more important to you?

2. Production Possibilities A. The Production Possibilities Frontier (PPF) shows the combination of goods or services that can be produced when all resources are used.

You have been given 20$ to spend You have been given 20$ to spend. You can either spend it on books or movies. Books are 2$ each and movies are 4$. Books Movies 10 5 4 3 8 1

B. Identifying possible alternatives allows an economy to examine how to use it’s limited resources in production C. Find many different ways to use it’s resources and find the best match that leads to maximum production D. Any resources not being used that can be is making an economy loose potential money and keeps it from reaching maximum potential. E. Economic growth can be made with more resources, more labor or increased productivity.

Thinking like an economist Throughout the book we will use various methods that will make us able to take given resources and find how to maximize output. Some examples are models and cost-benefit analysis.

EQ 1.3 What choices do we have? We are able to choose what options will maximize our happiness output. What things we choose to give up and how we can make the most of any given resources.

Chapter EQ What is Economics? The study of choices! The Science of Choosing!