1. What is Economics?

2. Scarcity and the Science of Economics
Section 1

3. TINSTAAFL “There is no such thing as a free lunch.”
The more a business gives away as “free” the more it charges for the items it produces and sells
In the end someone always pays

5. Fundamental Economic Problem
Scarcity- condition that arises because society does not have enough resources to produce all things that society would like to have.
An increase in income can not solve this problem b/c if more money is in circulation it becomes useless
Scarcity is not because a shortage of money but because of a shortage of resources.

6. Factors of Production
Provide the means for society to produce and distribute its goods and services
Land
“gifts of nature” natural resources not created by human effort. Limited Supply
Capital
The tools, equipment, and factories used in the production of goods and services
Financial Capital- money used to buy tools and equipment
The result of production
Labor – people w/ their effort, ability, and skills
Entrepreneurs – risk taker in search of profits
The driving force of American economy because they start new businesses and bring new products to the market

8. Three Basic Question What to Produce How to Produce
Society can not have everything society wants so it must decide what to produce.
How to Produce
What methods (provide more jobs, quicker & cheaper)
For Whom to Produce
Who will receive the existing supply?
* Different societies respond to these in different ways

9. Economics
The study of human efforts to satisfy what appear to be unlimited and competing wants through the careful use of relatively scarce resources.

10. The Scope of Economics
Description – (of economic activity) who gets what. Unemployment, inflation, trade, labor, gov’t spending
Analysis- How and Why
Explanation – explains the how and why to others
Prediction- anticipating likely consequences of different courses of actions

11. Section 2

12. Trade-Offs
Because people cannot have everything they want. They face trade-offs, or alternative choices, when spending their income or time
Trade-offs are present whenever choices are made and are in the form of opportunities given up when one action is chosen instead of the other
To help make a decision a decision making grid can be used. (pg 15)

13. Opportunity Cost
Opportunity Cost- Cost of the next best alternative use of money, time, or resources when one choice is made rather than another.
Economists use opportunity cost instead of cost in terms of dollars

15. Production Possibilities Frontier
Opportunity cost is shown on a production possibilities frontier
Diagram representing various combinations of goods and or services an economy can produce when all production resources are fully employed.

17. Needs and wants
Section 3

18. Needs vs. Wants Need- Basic requirement of survival
Want- Means of expressing a need
The range of things represented by the term want is much broader than that represented by the term need

19. Free Product- they are so plentiful that no one could possibly own them and a price can not be put on them
Sunshine
air
Economic Goods- goods and services that are useful, relatively scarce, and are transferable to others. Because they are scarce there is not enough to fill all wants… therefore they command a price.

20. Goods Good- tangible commodity
Consumer good- intended for final use by individuals
Capital Goods- manufactured goods used to produce other goods
Durable Good- lasts 3 years or more
Non-Durable- good that last less than three Years

21. Services Work performed for someone
Haircut, home repairs, doctors, lawyers
Service is something that can not be felt or touched

22. Consumers People who use goods and services to satisfy wants and needs
Consumption- the process of using up goods and services in order to satisfy wants and needs.
Conspicuous Consumption- use of goods and services to impress others
Expensive jewelry or cars
Designer brands

23. Value
Value refers to something that has a worth that can be expressed in value and cents
Value is determined by the price someone would pay for the item
Paradox of value- things like water are essential to life yet have little value and diamonds are not essential but have a much higher value
This is due to scarcity
In order for something to have value it must be somewhat scarce

24. Utility Utility- the capacity to be useful to someone
The utility ( or usefulness) of a product may vary from person to person depending on their needs and interests
For something to have value, it must be scarce and have utility
This is the solution of the paradox of value

25. Wealth
Wealth is the sum of those economic products that are tangible, scarce, useful, and transferable from one person to another.
Services do not count as wealth because it is difficult to measure the value of services accurately
A countries total wealth us the stockpile of useful, scarce, transferable, and tangible things in existence at a given time.

26. Productivity Production- the process of creating goods and services.
Productivity- efficient use of productive resources
Goes up whenever more output can be produced with the same amount of input
Also goes up if the same output can be produced w/ less input
Productivity is usually discussed in terms of labor but it applies to all factors of production

27. Specialization of Labor
Increased productivity often occur when people specialize
means that productive inputs do whatever task they are able to do best
It is also known as division of labor
Takes place when workers perform fewer tasks more frequently

28. Human Capital
Human Capital- the sum of skills, abilities, health, and motivation of people
Productivity tends to increase when firms invest in human capital

29. Economic Interdependence
Economic Interdependence- Actions in one part of the country or the world have an economic impact on what happens elsewhere

30. Circular Flow of Economic Activity
Market- is a location or other mechanism that allows buyers and seller to deal readily in a certain economic product
Factor markets- the markets were productive resources are bought and sold ( land, money loaned and invested, people earn wages and salaries)
Product market- markets where producers offer goods and service for sale
Pg 25

31. Free Enterprise System
System where consumers and privately owned businesses, rather than the government, jointly make the majority of the WHAT, HOW, and FOR WHOM decisions.