1. The Basic Problem in Economics
Economics – the study of how individuals and societies make choices about ways to use scarce resources to fulfill their unlimited needs and wants
Everything other than a basic survival need is considered a want by economists
Scarcity – people do not and cannot have enough income, time, and other resources to satisfy their every want. Wants exceed what is available at any given time.
Shortage – temporary condition while scarcity always exists

2. Factors of Production
Factors of Production – resources of land, labor, capital & entrepreneurship used to produce goods and services
Land – natural resources and surface land and water
Labor – human effort directed toward producing goods and services
Capital – previously manufactured goods used to make other goods and services
Entrepreneurship – ability of risk taking individuals to develop new products and start new businesses in order to make profits
Technology – advance in knowledge leading to new and improved goods and services and better ways of producing them

3. Factors of Production
Goods – tangible objects that can satisfy people’s wants
Services – actions that can satisfy people’s wants
Productivity – the amount of output (goods and services) that results from a given level of inputs (land, labor and capital)

4. Trade-Offs
Trade-Off – sacrificing one good or service to purchase or produce another
Opportunity Cost – the value of the next best alternative that had to be given up to do the action that was chosen. Any time you pay money to purchase a good or service, you lose the opportunity to purchase your next best alternative.

5. What Do Economists Do?
Microeconomics – branch of economic theory that deals with behavior and decision making by small units such as individuals and firms
Macroeconomics – branch of economic theory dealing with the economy as a whole and decision making by large units such as government.

6. What Do Economists Do?
Economy – all the activity in a nation that together affects the production, distribution, and use of goods and services
Economic Models – a theory or simplified representation that helps explain and predict economic behavior in the real world
Models help economists use the scientific method in predicting and solving real life scenarios
Economists try to avoid value judgments and only inform of what possible outcomes may be.