What is Economics?

 The study of how people seek to satisfy their needs and wants by making choices  Three groups:  Individuals  Businesses  Governments

 Limited quantities of resources to meet unlimited wants

 Occurs when producers will not or cannot offer goods or services at the current prices

 Resources that are used to make all goods and services  Land  →all natural resources in or on it  Labor  →effort made by a person  Capital  →physical capital: buildings, pencils, dishwashers  →human capital: knowledge and skills

 Men and women who decide how to combine land, labor and capital to create new goods and services

 The most desirable alternative given up as the result of a decision

 Alternatives that either individuals, businesses or society give up when they take one course of action over another

 Thinking at the margin  Deciding whether to do or use one additional unit of some resource  Deciding at the margin can only be used when alternatives can be divided into increments  Decision Making Grid is a visual way of examining opportunity cost.

 Production Possibilities Curve:  A graph that shows alternative ways to use an economy’s resources  Factors of production (land, labor and capital) are used to determine how much of a good or service can be produced  Production possibilities graphs can show us if an economy has grown or shrunk while showing the opportunity costs  Efficiency, Growth and Costs are factors that can be seen from production possibility graphs

 Using resources in such a way as to maximize the production of goods and services  When this condition is present it is called the production possibilities frontier  Underutilization : Using fewer resources than the economy is capable of supplying

 Condition that reflects a change in factors of production or when resources increase  When an economy grows the curve shifts to the right  Production capacity can also decrease causing the curve to shift left

 It is not necessarily money but the opportunity we give up when we choose one option over the other  Law of increasing costs : As production switches from one item to another more resources are needed to increase production of the second item.  **This is why production possibility frontiers usually curve**

 Two areas that often change  Economists collect data to create production possibility curves based on which goods and services a country can produce based on current resources  Resources include land and natural resources, work force, human and physical capital  Technology is considered both human and physical capital

What to produce?

If the economy is not using all its resource it is operating inefficiently.