What is Economics?

The Fundamental Economic Problem The fundamental economic problem is scarcity Unlimited wants and needs plus limited resources causes scarcity Economics is the study of how people and societies use their resources to satisfy their wants and needs.

The Three Basic Questions Because resources are scarce all societies must answer three basic questions What to produce? How to produce? For whom to produce? The way a government answers these questions determine the type of economic system it has.

The Factors of Production We utilize productive resources to make the goods and services that we use to satisfy our wants and needs. There are four productive resources Land (natural resources) Labor (human resources) Capital (any good or service that can be used to produce another good or service) Entrepreneur (risk taker that combines land, labor and capital into a new product or idea)

Goods, Services, and Consumers Goods are tangible items that are economically useful or satisfy an economic want. Services are work performed for someone and are intangible. Consumers use goods and services to satisfy wants and needs.

The Circular Flow of Economic Activity Markets are locations/mechanisms for buyers and sellers to trade. The factor market is where people earn their incomes. Factor markets center on the four factors of production: land, capital, labor, and entrepreneurs. The product market is where people use their income to buy from producers. Product markets center on goods and services