Economics: Scarcity, Factors of Production, and Trade-Offs

1. Chapter 1Section 1 Economics Scarcity Factors of Production Land Labor Goods Services Capital Productivity Entrepreneurship Technology The Basic Problems in Economics

2. The study of the choices that people make to satisfy their needs and wants is called ECONOMICS. A person who studies these economics choices is called an ECONOMIST. .

3. Scarcity Resources -limited. People’s wants - unlimited, Scarcity is the most basic problem of economics, because it forces people to make decisions. Three basic economic questions 1. What to Produce 2. How to produce 3. Whom to produce for.

4. 1. What to Produce? Society needs and wants can never be met completely. Therefore, society’s must determine the urgency of those needs and wants. 2. How To Produce? A society can allocate resources in many different ways. Guns vs. Butter 3. For Whom to Produce? Who gets the goods and services that it produces.

5. Needs are classified as goods and services that are necessary for survival, such as food. Wantsare classified as goods and services that people consume beyond what is necessary for survival. In economic terms, GOODS are physical objects that can be purchased while SERVICES are actions or activities that are performed for a fee. The term product often refers to both goods and services.

6. Economic Resources Economists also are interested in the environment in which people make decisions. Economists see resources. A RESOURCE is anything that people use to make or obtain what they need or want. Resources that can be used to produce goods and services are called FACTORS OFPRODUCTION. A. Natural resources B. Human Resources C. Capital Resources D. Entrepreneurship

7. Natural Resources Any items provided by nature that can be used to produce goods or to provide services .These resources can be found on or in Earth, or in Earth’s atmosphere. Human Resources Any human effort exerted during production is considered a HUMAN RESOURCE. This effort can either be physical or intellectual Capital Resources The manufactured materials used to create products are called CAPITAL RESOURCES. CAPITAL GOODS are the buildings, structures, machinery, and tools used in the production process. The finished products of capital goods are called CONSUMER GOODS. TECHNOLOGY is the use of knowledge and methods to create new products or make existing products more efficiently. Entrepreneurship The combination of organizational abilities and risk taking involved in starting a new business or introducing a new product is called ENTREPRENUERSHIP. An ENTREPRENUER is a person who attempts to start a mew business or introduce a new product—risking economic failure in return for the possibility of financial gain.

8. Productivity • Productivity: The level of output that results from a given level of input. • Efficiency: The use of the smallest amount of resources to produce the greatest amount of output. • Division of Labor: Assigning a small number of tasks to each worker. • Specialization: The focus on one activity

9. Section 2 Trade - Offs • Trade-off • Opportunity Cost • Production Possibilities Curve

10. Individuals must make decisions about how to spend their resources. One good is sacrificed for another, this is called TRADE-OFF. • The cost of this trade-off—the value of the next best alternative that is given up to obtain the preferred item—is called the OPPORTUNITY COST. The next best choice—is considered the opportunity cost.

11. Production Possibilities • Trade-offs and opportunity costs can be illustrated using a PRODUCTION POSSIBILITIES CURVE. • It shows the possible combinations of two goods or services that can be produced within a stated time period

12. Section 3 What Do Economist Do ? • Microeconomics • Macroeconomics • Economy • Economic Model • Hypothesis

13. Economic actions can generally be classified into two different categories. Microeconomics is the behavior and decision making by small units. Individuals and firms Macroeconomicsis the economy as a whole and decision making by governments. What is an ECONOMY ? All activities in a nation that together affects the production, distribution and use of goods and services.

14. Economic Models • Simplifies representations of the real world • Helps better understand cause and effect of activities • Research ----Monitor----Advise • Example: Reducing Govt. spending on the poor • Must deal in facts and be tested under varying circumstances • Informs of the likely short and long term outcomes. Hypothesis is a educated guess or prediction.