1. Wants, Needs, and Choices
The basic problem in economics is how to satisfy unlimited wants with limited resources.
Section 1

2. Wants, Needs, and Choices (cont.)
Economics the study of how people choose ways to use limited resources to fulfill their wants
Section 1

3. Economics is divided into two parts:
Microeconomics –dealing with behavior & decision making by small units (individuals & firms)
Macroeconomics -- dealing with the economy as a whole and decision making by large units (governments)

4. Wants, Needs, and Choices (cont.)
To economists, anything other than what people need for basic survival is a want.
Wants & Needs
Need (food, clothing & shelter)
Want – everything else
How societies choose to use their resources is the focus of economics.
Section 1

5. The Problem of Scarcity
Scarcity exists because people’s incomes and time are limited.
Section 1

6. The Problem of Scarcity (cont.)
Choices arise because everything that exists is limited. At the same time, people have competing uses for the available resources resulting in scarcity.
scarcity: basic economic problem that results from a combination of limited resources and unlimited wants
Shortages are temporary, whereas scarcity is permanent.
Section 1

7. The Factors of Production
Scarce resources require choices about uses of the factors of production: land, labor, capital, and entrepreneurship.
Section 1

8. The Factors of Production (cont.)
When economists talk about scarce resources, they are referring to the factors of production:
Create a foldable
Land
Labor
Capital
Entrepreneurship
Section 1

9. The Factors of Production (cont.)
Land: all natural resources, surface land & water (land, water, fish, animals, trees, and mineral deposits)
Labor : (human resources) the work people do to produce goods and services.
goods: tangible objects that you can touch
services: actions that can satisfy people’s wants or needs

10. The Factors of Production (cont.)
Capital: previously manufactured goods used to make other goods and services (machines, buildings & tools)
When combined with land and labor, increases the value of all three factors and increases productivity
Productivity the amount of output (goods and services) that results from a given level of inputs (land, labor, capital, and entrepreneurship)

11. The Factors of Production (cont.)
Entrepreneurship is individuals taking risks to start new businesses.
Technology (sometimes added to the list of factors of production) uses science to more efficiently use land, labor and capital.
How much of each of these factors of production an individual has determines his or her wealth.
Section 1

12. Activity– Economic Decision Making and the Factors of Projection

13. Trade-Offs (cont.)
The economic choices people make involve trade-offs (sacrificing one good or service to purchase or produce another)
The cost of a trade-off is what you give up in order to get or do something else.
Economists call the value of the next best alternative or trade-off, opportunity cost (2nd choice)
View: What’s the Difference Between a Trade-Off and an Opportunity Cost?
Section 2

14. Figure 2

15. Concept Trans 2

16. Production Possibilities Curve (cont.)
A production possibilities curve is a graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time
Helps determine how much of each item to produce, which reveals trade-offs and opportunity costs
View: A Production Possibilities Curve
View: Production Possibilities—Guns vs. Butter
Section 2

17. Figure 3

18. Economic Models (cont.)
Economy is the production and distribution of goods and services in a society
Economists one’s who study how individuals, businesses and nations use their limited resources.
Economics study of how people make choices about ways to use limited resources to fulfill unlimited wants
Section 3