CHAPTER 1 What Is Economics?

1. CHAPTER 1What Is Economics? Scarcity and the Science of Economics Basic Economic Concepts Economic Choices and Decision Making CONTEMPORARY ECONOMICS: LESSON 1.1

2. Consider CHAPTER 1What Is Economics? How much money do you have with you at this moment? Why do most people know this answer instantly? Why are you reading this book right now rather than doing something else? Why is there no sense crying over spilt milk? In what way are people who pound on vending machines relying on a theory? CONTEMPORARY ECONOMICS: LESSON 1.1

3. Objectives LESSON 1-1The Economic Problem Recognize the economic problem, and explain why it makes choice necessary. Answer the three basic economic questions. Identify and give examples of the Factors of Production. CONTEMPORARY ECONOMICS: LESSON 1.1

4. entrepreneur natural resources capital goods good service Key Terms LESSON 1-1The Economic Problem scarcity productive resources economics human resources labor CONTEMPORARY ECONOMICS: LESSON 1.1

5. Economic Choices • The economic problem • Scarcity is the condition facing all societies because there are not enough productive resources to satisfy people’s needs and wants. • Productive resources are the inputs used to produce the goods and services that people want. Someone has to pay for production--TINSTAAFL • Economics defined • Economics examines how people use their scarce resources to satisfy their unlimited wants. CONTEMPORARY ECONOMICS: LESSON 1.1

6. Economic Choices Discussion: Why do you think scarcity is an issue with the rich as well as the poor? CONTEMPORARY ECONOMICS: LESSON 1.1

7. Three Basic Questions • What must we produce? • How should we produce it? • For whom should we produce? CONTEMPORARY ECONOMICS: LESSON 1.1

8. Discussion Questions • How might the economic decisions of a mountainous island society differ from those of a mountainous landlocked society? • Can you think of countries that chose to focus on military production rather than take care of its people? • Why doesn't Saudi Arabia concentrate on building ships? CONTEMPORARY ECONOMICS: LESSON 1.1

9. Productive Resources • Human resources • Natural resources • Capital resources CONTEMPORARY ECONOMICS: LESSON 1.1

10. Human Resources • Human resources is the broad category of human efforts, both physical and mental, used to produce goods and services. • Labor is the physical and mental effort used to produce goods and services. • An entrepreneur tries to earn a profit by developing a new product or finding a better way to produce an existing one. CONTEMPORARY ECONOMICS: LESSON 1.1

11. Natural Resources • Natural resourcesare “gifts of nature” including land, forests, minerals, oil reserves, bodies of water, and animals. CONTEMPORARY ECONOMICS: LESSON 1.1

12. Capital Resources • Capital goods include all human creations used to produce goods and services. These capital goods include money, tools, equipment, machinery, and factories. CONTEMPORARY ECONOMICS: LESSON 1.1

13. Goods and Services • Goods • A good is tangible—something you can see, feel, and touch. • Services • A service is intangible—not physical—yet uses scarce resources to satisfy human wants. CONTEMPORARY ECONOMICS: LESSON 1.1

14. No Free Lunch • All goods involve a cost to someone, and draw scarce resources away from the production on other goods. • A good or service is scarce if the amount people desire exceeds the amount available at a zero price. CONTEMPORARY ECONOMICS: LESSON 1.1

15. The Scope of Economics • Economics deals with the description of economic activity. • Analysis looks at the “why” and “how” of economic activity. • Economist communicating knowledge. • Prediction used to advise us of future activity. CONTEMPORARY ECONOMICS: LESSON 1.1

16. Discussion Question • What makes economics a social science? Economics is a study of human behavior because it looks at the decisions we make and how we react to those decisions. CONTEMPORARY ECONOMICS: LESSON 1.1

17. Scarcity Capital Need Want Economics Labor Production Entrepreneur Financial capital Gross Domestic Product (GDP) Factors of production Land Not enough resources to meet needs and wants. The study of how people decide to use scarce resources. A basic requirement for survival. A way of expressing a need. Refers to gifts of nature. Tools, equipment, and factories used in production of goods and services. People with all their efforts and skills. A risk-taker in search of profit. The process of creating goods and services. The dollar value of all final goods and services. Key Term Matching CONTEMPORARY ECONOMICS: LESSON 1.1

18. Scarcity Capital Need Want Economics Labor Production Entrepreneur Financial capital Gross Domestic Product (GDP) Factors of production Land 1. Not enough resources to meet needs and wants. 5. The study of how people decide to use scarce resources. 3. A basic requirement for survival. 4. A way of expressing a need. 12. Refers to gifts of nature. 2. Tools, equipment, and factories used in production of goods and services. 6. People with all their efforts and skills. 8. A risk-taker in search of profit. 7. The process of creating goods and services. 10. The dollar value of all final goods and services. Key Term Matching CONTEMPORARY ECONOMICS: LESSON 1.1

19. Assessment Questions • These are manufactured goods needed to produce other goods and services. Capital Goods CONTEMPORARY ECONOMICS: LESSON 1.1

20. Assessment Questions • The dollar value of all final goods and services and the most comprehensive measure of a country’s total production output. Gross Domestic Production or GDP CONTEMPORARY ECONOMICS: LESSON 1.1

21. Assessment Questions 3. The money used to buy the tools and equipment needed for production is known as Financial Capital CONTEMPORARY ECONOMICS: LESSON 1.1