The Basic Problem in Economics Economics – the study of how individuals and societies make choices about ways to use scarce resources to fulfill their unlimited needs and wants Everything other than a basic survival need is considered a want by economists Scarcity – people do not and cannot have enough income, time, and other resources to satisfy their every want. Wants exceed what is available at any given time. Shortage – temporary condition while scarcity always exists

Factors of Production Factors of Production – resources of land, labor, capital & entrepreneurship used to produce goods and services Land – natural resources and surface land and water Labor – human effort directed toward producing goods and services Capital – previously manufactured goods used to make other goods and services Entrepreneurship – ability of risk taking individuals to develop new products and start new businesses in order to make profits Technology – advance in knowledge leading to new and improved goods and services and better ways of producing them

Factors of Production Goods – tangible objects that can satisfy people’s wants Services – actions that can satisfy people’s wants Productivity – the amount of output (goods and services) that results from a given level of inputs (land, labor and capital)

Trade-Offs Trade-Off – sacrificing one good or service to purchase or produce another Opportunity Cost – the value of the next best alternative that had to be given up to do the action that was chosen. Any time you pay money to purchase a good or service, you lose the opportunity to purchase your next best alternative.

What Do Economists Do? Microeconomics – branch of economic theory that deals with behavior and decision making by small units such as individuals and firms Macroeconomics – branch of economic theory dealing with the economy as a whole and decision making by large units such as government.

What Do Economists Do? Economy – all the activity in a nation that together affects the production, distribution, and use of goods and services Economic Models – a theory or simplified representation that helps explain and predict economic behavior in the real world Models help economists use the scientific method in predicting and solving real life scenarios Economists try to avoid value judgments and only inform of what possible outcomes may be.