INTRODUCTION TO ECONOMICS

But Mom, I NEED It!! • What is the difference between a WANT and a

NEED?– A need is something essential to survival; the basic

necessities of life.• Ex. Air, Water, Food, Clothing, Shelter

– A want is something that we desire, but is not essential for our survival; extras that make like more pleasant.

• Ex. Cell Phones, Television, Cars, iPods

• Because our resources are limited, people must often make choices between needs and wants.

What is Economics?

• Economics - The study of how people choose to satisfy their needs and wants in a world of limited resources.– Microeconomics: The study of the behavior and

decision making of individuals, families and businesses (small scale)

– Macroeconomics: The study of the behavior and decision making trends of entire economies (large scale)

What is Scarcity?

• Scarcity - A limited quantity of resources to meet unlimited needs and wants.– Scarcity ALWAYS exists because resources are

always limited.

• Scarcity v. Shortages– A shortage occurs when a good or service is

unavailable– Shortages can be temporary or long-term and

can be caused by price fluctuations, wars or drought.

Classifying Resources

• The resources used to make all goods and services are called the factors of production. They are:– Land: All materials found in nature (natural

resources). • Ex. Land, water, trees, coal, oil

– Labor: The effort a person devotes to a task for which he/she is paid.

• Ex. When you are paid an hourly wage for working, you are being paid for your labor.

Classifying Resources cont.

• Capital - Any human made resource that is used to produce other goods and services.

There are two types of capital:– Physical Capital: Human made objects

that can be used to create other goods and services

• Ex. Buildings, equipment, tools

– Human Capital: The knowledge and skills a person gains through education and experience

Making Decisions

• Trade-Offs: An alternative that we sacrifice when we make a decision. All human decisions involve trade-offs.– Individuals– Businesses– Societies

• Guns or Butter?

Opportunity Costs

• Opportunity Cost: The most desirable alternative given up as the result of a decision. Your second choice.– Whenever we make a decision, we face an opportunity

cost;

THINK ABOUT IT!

• Explain the difference between an opportunity cost and a trade off.

• Read pg. 19, “Safety at Any Cost?” and answer the questions at the bottom of the page.