Chapter 1

What is Economics?

Everything has a price!!

TINSTAAFL

• There Is No Such Thing As A Free Lunch!!!!!!!!

• The more a business gives away for free, the more it has to charge for the items it produces and sells.

Group Activity

• Think of four specific items that companies claim are “free”.

• Then discuss how and by whom that item is paid for.

Scarcity

• The condition that arises because society does not have enough resources to produce all of the things that people would like to have.

Scarcity will always be…

• Why?

Scarcity

• Not caused by shortage of money!• Caused by a lack of resources!

Factors of Production

Land

• In economics, land= “gifts of nature”

Capital

• The tools, equipment, and factories used to make goods.

Labor

• The workforce that uses efforts, abilities, and skills to produce goods.

Entrepreneurs

• Risk takers who start businesses to earn a profit.

Three Basic Questions

• To provide for the basic need of people, societies must answer three questions:

What to Produce?

• Since societies cannot have everything they want, they must decide what to produce.

How to Produce?

•What methods can be used to produce goods?

For Whom to Produce?

•Societies must decide how goods are distributed.

The Meaning and Scope of Economics

• Economics is the study of human efforts to satisfy what appears to be unlimited and competing wants through the careful use of relatively scarce resources.

Trade-Offs

• People must make decisions on what products to buy because they cannot buy everything.

• When people cannot have everything they want, they face trade-offs.

Opportunity Costs

•The “cost” of the next best alternative use of money, time, or resources when one choice is made over another.

Incentives

• Positive rewards for making some kind of choice or behaving in a certain way

• When making choices, people respond to incentives

The Profit Motive

• A major goal—or incentive—for a business is the profit motive

• Profit = total sales > total costs• Ensuring profit =making choices!!

Production Possibility Curve

Making a PPF

GUNS(millions of pounds)

BUTTER(millions of pounds)

0 15

9 14

12 12

14 9

15 0

Macroeconomics

•The study of the economy as a whole (inflation, unemployment, long-term economic growth, gov’t involvement…)

Microeconomics

•The study of individual consumers and businesses.

Ch 1 Notes Quiz

PROPERTIES

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