What is Economics? Chapter 1

The Economic Problem Section 1 Scarcity- Condition facing all societies because there are not enough productive resources to satisfy people’s wants. Ex:- Water in deserts. All the people want water, but because it does not rain often and the weather is very hot, water is scarce or limited to the demands of the people.

The Economic Problem Productive Resources- Factors of production. Because productive resources are scarce, good and services are scarce too. Ex- Milk, if cows milk is contaminated, good milk will be scarce. This will force you to make a decision to either not drink milk, or find a substitute like soy milk.

Economic Problem Economics- How people use their scarce resources to satisfy unlimited demands. Ex- You have to have income to satisfy your wants. If you want a house, you must have a job and be making money to buy the house.

Productive Resources Human Resources- Broad category of human efforts both physical and mental. Ex- You need a doctor to conduct surgeries, which he uses physical and mental labor. He has to use his hands (physical) and the know-how (mental) to perform the surgery. Labor- Physical or mental labor to produce goods or services. You sell your time to earn a wage.

Human Resources Entrepreneur- Someone who tries to earn a profit by creating new products or improve existing ones. Ex-P-Diddy. P-Diddy has a clothing line (Sean-John) he is a producer (Beiber Fever), TV Show (Making the band) and many other business ventures.

Natural Resources Natural Resources- Gifts of nature. Land, forests, water and animals are natural resources. Renewable Resource- Resources that can be renewed. Ex- Trees, trees can be cut down and replanted and grow back.

Natural Resources Non-renewable Resources- Resources that can’t be reproduced. Once it’s gone, it’s gone. Ex- Oil. Once oil is gone, it is gone. There are synthetic oils, but these are not “real” oil. This is why many companies are trying to create alternative fuels to help save on the use of oil.

Goods and Services Capital Goods- All human creations used to produce goods or services. Ex- Your desks. Without desks, students would not have a place to sit and learn, there for, desks are important to a school.

Goods and Services Good- A good is tangible. A tangible good is something that can be touched, seen and felt. Ex- Corn. Corn, can be seen, purchased, tasted, touched, smelled and eaten. Service- Something that is in-tangible or not touched, tasted, smelled or eaten. Ex-Symphony. You go and listen to it, but you can’t touch a symphony, just maybe the people playing in it.

Economic Theory Section 2 Economic Theory- Economic reality that is used to make predictions about the real world. Ex-What will happen to Pepsi if the price goes up? Some people will then drink Coke to find a substitute.

Marginal Analysis Marginal- Increments, additional , extra or one more. Ex-Desert with Dinner- You want to eat it and it will taste good, but there will be an extra cost. There will be an extra cost of money to your bill, there will be extra calories to your diet. These are all additions which are Marginal.

Market Economics and National Economics Market Economics or Microeconomics- Economic behavior or yourself and others. Ex- Economics that directly effect you. If you need gas for your car, you buy the gas. If you are hungry, you buy food.

National Economics National Economics or Macroeconomics- Economics that focus on the performance of the economy as a whole. Ex- Price increase in tires- The gulf oil spill had millions of gallons of oil wasted. Less oil that is produced forces prices to increase. Tires are made from a byproduct of oil. Less oil, makes oil prices higher and then the price of tires increase.

Market Participants Markets- Buyer and sellers carry out exchange. Ex- Flea Market. The flea market brings people together at one place where goods can be purchased and money is exchanged for good or services.

Opportunity Cost and Choice Section 3 Opportunity Cost- The value of the best alternative you must pass up. Ex- You want to go to a movie that costs $10. If you go, then you can’t eat McDonalds with your friends on Friday. If you don’t go to McD’s, you may miss out on something. But you really want to see the movie. What do you do?

Ignore Sunk Cost Sunk Cost- Money that you have already spent and can’t get back. Ex- You paid to go to a movie, The movie is awful and you decide to leave. You can’t get your money back and don’t want to waste your time, so you leave. “No use crying over spilled milk!”