1. What is Economics?
Chapter 1

2. Scarcity and the Science of Economic
The Fundamental Economic Problem
Scarcity - Video (3 min)
fundamental economic problem facing all societies; not having enough resources to satisfy all wants and needs
Needs and Wants
Need – basic element for survival
Want – everything else
TINSTAAFL
Three Basic Questions
WHAT to produce?
HOW to produce?
FOR WHOM to produce?

3. Scarcity

6. The Factor of Production
Land – “gifts” of nature
Labor – people with all their abilities and skills
Capital – tools, equipment, machinery in the production of goods/services
Entrepreneurship – someone willing to take a risk
The Scope of Economics
Description (ex. GDP)
Analysis (ex. How do taxes affect people)
Explanation
Prediction

7. Basic Economic Concepts
Goods, Services and Consumers
Goods
Consumer goods
Durable goods
Nondurable goods
Services
Goods are tangible items you can touch and feel
Haircuts, home repair, servers, teachers, etc.
Consumers
People who use goods and services to satisfy their needs and wants

8. Value, Utility and WealthOR
Value, Utility and Wealth
Paradox of Value
Adam Smith noticed that some necessities such as water and air have very low monetary value. Some nonessentials, such as diamonds have a high value.
Utility
For something to have value, it must have utility.
Being useful and giving satisfaction; very subjective
Value
For something to have monetary value, it must be scarce and have utility.
Being useful and giving satisfaction; very subjective
Wealth
The accumulation of products that are tangible, scarce, useful and transferable from person to person

9. The Circular Flow of Economic Activity
Markets allow buyers and sellers to exchange a specific product.
Markets may be local, national, or global – can exist in cyberspace
Factor markets (factors of production are bought and sold)
Product markets (After income is earned, consumers spend money on products)

10. Productivity and Economic Growth
Goes up whenever more can be produced w/ same amount of resources
Investing in Human Capital
Sum of peoples skills, abilities, health, knowledge and motivation
Individuals can invest in themselves - college
Division of Labor and Specialization –
Each worker completes a part of the sum
A worker becomes highly skilled in a certain area
Economic Interdependence
We rely on others, others rely on us

11. Economic Choices and Decision Making
Trade-offs and Opportunity Cost
Trade-Off – alternative that is available whenever a choice is to be made
Opportunity Cost – cost of the next best alternative use of money, time, or resources when making a choice

12. Opportunity Cost

13. Production Possibilities
Production possibilities frontier – is a diagram representing various combinations of goods and services an economy can produce when all its resources are in use.