The Fundamental Economic Problem Economic Choices: Well informed citizens make rational economic choices everyday. The choices we make are based on the fact that we do not have enough resources to satisfy everybody’s wants and needs. The study of economics will help citizens think about the choices that they are making.

Scarcity All individuals have needs and wants Needs: items needed in order to survive: food, water, clothing, shelter Wants: items that we would like to have: boats, fancy cars, vacations, concert tickets, etc. -items that makes our life more comfortable Scarcity occurs when we do not have enough resources to produce all of the items that we would like to have -people do not have enough time, income, or other resources to satisfy their every desire -because of scarcity, we must make choices among the alternatives -the smart consumer considers if they can afford to buy the BMW vs the Toyota based on their limited resources

Scarcity and shortage are not the same thing: scarcity always exists, whereas, a shortage is only temporary Society must determine what to produce, how to produce, and for whom to produce What to produce- do we use the limited money that we have for education or healthcare How to produce: do we drill off the Florida coast to get more crude oil or do we restrict drilling to the areas we drill now to produce more energy For whom to produce: where will the new school be built

Article Questions You will be placed in groups and read the article. You will answer the following questions: How do the author’s choice of words and the tone of the language used illustrate the author’s point of view on the topic? What words really catch your attention here? Why do those words stand out? How did Table 1 and Figure 1 help you understand author’s points? What is the author’s point of view on the topic? Explain the cause and effect relationship in the text. What is the overall tone of the text?

Types of Resources Only a certain amount of resources exist, regardless of wants and needs Traditionally, economists have classified resources as : Land- any natural resource, not just surface land -the most important in economic terms are land and mineral deposits -the location of the land establishes its value as a resource labor- the work people do -often called a human resource -includes anyone who works

Capital- all the property people use to make other goods and services -includes all machinery used to make a product Entrepreneurship- the ability of individuals to start a new business, to introduce new products and techniques, and to improve management techniques -all changes in business organization is part of -involves initiative and individuals willing to take risks to make profits -succeed when they produce new products, improve an existing product or produce it more efficiently, or reorganize a business to run more smoothly

Technology- added to the list of resources by some economists -any use of land, labor, and capital that produces goods and services more efficiently -today, technology usually describes the science to develop new products and new methods for producing and distributing goods and services

Using Economic Models Economic models are economists' theories The model represents a simplified representation of the real world The models show how people will react to changes in the economy or to predict what would happen if something in the economy should change Many models appear as some type of graph The models are based on assumptions, or things that we take for granted as true -we use them as facts even though we can’t be sure that they are facts Models can be revised If an economic model results in a prediction that turns out to be right, the model can be used again If an economic model results in a wrong prediction, the model might be changed to make better predictions the next time

Creating the Economic Model An economist considers a model good if it produces useful material for analyzing the way the real world works An economist begins by forming an idea about the way things work, like a scientist formulates a hypothesis The economist then collects facts and discards those that are not relevant Once a conclusion is reached, the only way the economist can determine if the model works is to test it For example: As the price of CD’s is lowered, more will be purchased

Testing the Economic Model The economist tests the model in the same way that other scientists test hypothesis by developing educated guesses or predictions used as the starting point for the investigation The economist would collect data on whatever they are investigating For example: 100 CD’s were sold at $14, 200 CD’s were sold at $12, and 350 CD’s were sold at $10

Applying the Economic Model Much of the work of the economists involves predicting human behavior in particular situations Sometimes human behavior is not always predictable As a result an economists answer to a specific problem may not work for every one For Example: 100 CD’s at $14 = $1,400 200 CD’s at $12 = $2,400 350 CD’s at $10 = $3,500