Chapter 1 What is Chapter 1 What is Economics?Economics?

Section 1: Scarcity & the Section 1: Scarcity & the Factors of ProductionFactors of Production

Scarcity & ChoiceScarcity & Choice People cannot have everything People cannot have everything

they need & wantthey need & wantNeed- necessary for survivalNeed- necessary for survivalWant- Not essentialWant- Not essentialMust consider their options & Must consider their options & decide which choice will fill decide which choice will fill their needs besttheir needs best

Ex: You must choose how to Ex: You must choose how to spend your timespend your time

Businesses must choose how Businesses must choose how many people to hiremany people to hire

Economics- study of how people Economics- study of how people seek to satisfy their needs & seek to satisfy their needs & wants by making choiceswants by making choices

ScarcityScarcity Defining scarcityDefining scarcity

Implies limited quantities of Implies limited quantities of resources to meet unlimited wantsresources to meet unlimited wants

No one can have an endless No one can have an endless supply of everythingsupply of everything

Sooner or later a limit is always Sooner or later a limit is always reachedreached

Economics is about solving the Economics is about solving the problem of scarcityproblem of scarcity

Scarcity v. ShortagesScarcity v. Shortages Shortages occur when producers Shortages occur when producers

will not or cannot offer goods & will not or cannot offer goods & services at the current pricesservices at the current pricesCan be short or long termCan be short or long termCaused by wars or droughtsCaused by wars or droughts

Scarcity always exists because Scarcity always exists because our needs & wants are always our needs & wants are always greater than our resource supply greater than our resource supply Goods & services are scarce Goods & services are scarce because they are all made from because they are all made from resources that are scarceresources that are scarce

The Factors of ProductionThe Factors of Production All of the resources used to make All of the resources used to make

goods & servicesgoods & servicesLand- all natural resources used Land- all natural resources used to produce goods & servicesto produce goods & servicesNatural resources- fertile land Natural resources- fertile land for farming & products that for farming & products that are found in or on the land are found in or on the land (coal, water, trees, etc.)(coal, water, trees, etc.)

Labor- effort a person devotes to Labor- effort a person devotes to a task for which that person is a task for which that person is paidpaid

Capital- any human made Capital- any human made resource that is used to produce resource that is used to produce other goods & serviceother goods & service

Physical capital- human made Physical capital- human made objects used to create other objects used to create other goods & servicesgoods & servicesCan save people & companies Can save people & companies a great deal of time & moneya great deal of time & money

Ex: Buildings & toolsEx: Buildings & toolsBuildings help workers do Buildings help workers do their work by providing their work by providing protection & spaceprotection & space

Tools help workers produce a Tools help workers produce a good or servicegood or service

BenefitsBenefits Ex: Doing the dishes v. using Ex: Doing the dishes v. using

a dishwashera dishwasherExtra timeExtra timeMore knowledgeMore knowledgeMore productivityMore productivity

Human capital- knowledge & Human capital- knowledge & skills a worker gains through skills a worker gains through education & experienceeducation & experience

Land

Popping Corn

Vegetable Oil

Labor

The human effort needed to pop the corn

Capital

Corn-PoppingDevice

The factors of popcorn The factors of popcorn productionproduction

EntrepreneursEntrepreneurs

Leaders who decide how to combine Leaders who decide how to combine land, labor, & capital resources to land, labor, & capital resources to create new goods & servicescreate new goods & services

Take risks to develop original ideas, Take risks to develop original ideas, start businesses, create new start businesses, create new industries, & fuel economic growthindustries, & fuel economic growth

Scarce resourcesScarce resources

Supplies of land, labor, & Supplies of land, labor, & capital used to produce it are capital used to produce it are scarce & that each resource scarce & that each resource has many alternative useshas many alternative uses