What is Economics?

The fundamental economic problem Scarcity is: the fundamental problem in economics. People and societies have unlimited wants, but the resources we have to satisfy these wants are limited.

What is economics? Economics is… the study of how individuals and societies deal with scarcity. That is, how people satisfy their seemingly unlimited and competing wants with resources that are limited.

Trade-offs Because of scarcity, we cannot have everything we want. We must make choices between alternative uses of our limited resources, including income and time. We call these choices trade-offs. It’s not simply about having enough money.

Opportunity costs The cost of the next best alternative use of your money, time or resources when you make an economic decision is your opportunity cost. It’s the next best thing you had to give up.

Needs vs. Wants A need is a basic requirement for survival; what you must have to stay alive. A want is a way of expressing a need. This is a much broader category. You need food, but you want a hamburger.

Goods & Services The factors of production are used to produce goods and services. Goods: a tangible commodity such as a CD, book or car. Services: Work that is performed for a fee, such as auto repair or hair styling.

Factors of production These are the resources we use to produce the goods and services we need and want. The factors of production include land, labor, capital, and entrepreneurs. These are the limited resources we discuss in economics.

Land Natural resources not created by humans. They are “gifts from nature.” Examples: air, water, wood, oil, gold.

Capital Tools, equipment and factories used in production. They are a result of production or man made. Examples: Factories, schools, pencils, hammers.

Labor The effort, ability and skills of people. Basically, the work that people do. Examples: teachers, stock brokers, janitors, librarians.

Entrepreneurs Risk takers in search of profits. They have the ability to start new businesses or create new products. Examples: Bill Gates, Mrs. Fields, Ray Crock (McDonalds).