Chapter 1 What is Economics?

Chapter 1What is Economics? Section 1 Scarcity and the Science of Economics

I. Explain the nature of scarcity and show its relationship to economics. • A. TINSTAAFL – There is no such thing as a free lunch. • B. Scarcity – The condition that arises because society does not have enough resources to produce all the things people would like to have. • C. Unlimited Wants – Limited Resources

II. Describe the factors of production. • A. Land – “gifts of nature” not created by human effort.

II. Describe the factors of production. • B. Capital – tools, equipment, and factories used in production.

II. Describe the factors of production. • B. Capital • 1) Financial Capital – money

II. Describe the factors of production. • C. Labor – people’s efforts, abilities, and skills.

II. Describe the factors of production. • D. Entrepreneurs – risk taker in search of profit.

III. Examine the three basic economic questions each society must decide. • A. What to Produce? • B. How to Produce? • C. For Whom to Produce?

IV. Define economics and identify the four key elements within its scope. • A. Description – What is produced and who gets how much. • B. Analysis – Why are prices what they are?

IV. Define economics and identify the four key elements within its scope. • C. Explanation – It is useful and necessary to communicate to others economic activities. • D. Prediction – Anticipating consequences of different courses of action.

END OF SECTION 1

Chapter 1What is Economics? Section 2 Trade-Offs and Opportunity Costs

I. Understand that trade-offs are present whenever choices are made. • A. Trade-off – • An alternative choice. • B. Decision-making grid - • A tool that can be used to help make an economic decision by identifying alternatives and criteria to evaluate.

II. Discover Opportunity Costs • A. Opportunity Cost – • The cost of the next best alternative when a choice is made. • Refers to the value of a trade-off. • Incurred when trade-offs are made.

III. Evaluate the opportunity cost of production possibilities frontiers. • A. Production Possibilities Frontier (PPF) • Diagram representing various combinations of goods and services when all resources are fully employed. • Guns and Butter

III. Evaluate the opportunity cost of production possibilities frontiers. • C. Characteristics of the PPF • 1) Illustrates the concept of opportunity costs. • 2) Based on full employment of all productive resources. • 3) It is used by economists as a tool for description and analysis.

III. Evaluate the opportunity cost of production possibilities frontiers. • D. When a country produces on its PPF, • The decision to produce more of Product/Good A means, • Less of Product/Good B must be produced.

END OF SECTION 2

Chapter 1What is Economics? Section 3 Basic Economic Concepts

I. Understand the difference between needs and wants, and goods and services. • A. Need • Basic requirement for survival. • Physical or emotional. • Oxygen, water, and food. • B. Want • Means of expressing a need. • Specific example of a need. • Can live without.

I. Understand the difference between needs and wants, and goods and services. • C. Goods • Tangible commodity • 1) Consumer good • 2) Capital good • 3) Durable good = 3 + years • 4) Non-durable good = < 3 years • D. Service • Work that is intangible

Explain the relationship among value, utility, and wealth. • A. Value • Worth expressed in dollars and cents. • To have value, there has to be utility. • B. Utility • Capacity to be useful to someone. • C. Wealth • The sum of economic products that are tangible, scarce, useful, and transferable.

III. Describe the importance of productivity. • A. Productivity • The efficient use of productive resources. • B. Specialization • Do whatever task you are able to do best.

III. Describe the importance of productivity. • C. Division of Labor • Workers perform fewer tasks more frequently. • D. Human Capital • The sum of skills, abilities, health, and motivation of people.

IV. Understand the importance of economics to the American free enterprise system. • A. Economic interdependence • Actions in one part of the country or the world have an economic impact on what happens elsewhere.

IV. Understand the importance of economics to the American free enterprise system. • B. Market • Location or other mechanism that allows buyers and sellers to deal or exchange economic products.

IV. Understand the importance of economics to the American free enterprise system. • C. Standard of living • Quality of life. • D. Free Enterprise Economy • Consumers and privately owned businesses make the majority economic decisions.

END OF CHAPTER 1

Chapter 1 What is Economics?