Chapter 1, Section 1Scarcity and the Science of Economics

Fatmeh RedaInformation compiled from: Glencoe Economics: Principles and

Practices

The Fundamental Economic Problem

Think of a time that you wanted something and you couldn’t have it…

Think of a time you had something and you wanted something better…

Think of a time you wanted something and you felt like you had to have it… but it wasn’t a necessity….

We All Want More Than We Have

Scarcity The main problem in

economics is SCARCITY◦This is the condition that

results from society not having enough RESOURCES to produce [or make] al the things that people would like to have

And so, ECONOMICS is the study of how people try to satisfy their endless wants through the careful use of scarce resources

Needs and Wants NEED

◦ Basic requirement for survival

◦ Examples: food, shelter, clothing

WANT◦ Something we would

like to have but is not needed for survival

◦ Examples: toys, movies, books, music players

Break-Up ActivityIn pairs, make a list of items in your notes of things you think are NEEDS. And then make a list of things you think are WANTS.

Three Basic Questions

Because we live in a society that has scarce resources, we need to make careful economic choices about how we are going to use

these resources.

WHAT to Produce Should the resources be used

to make equipment for the military or to make food?

Should a piece of empty land in a city be used to build a community park or more houses?

Should the land be used to make houses for low-income people, middle-income, or high-income?

Should we use farmland to produce more corn or use it to raise cows for meat?

HOW to Produce Should factories use only

machinery or should workers?Should factories add more

machinery and fire people, or take our machinery and hire more people?

OR

FOR WHOM to Produce This decision is about who

will receive the things produced

Are houses for low-income workers, professionals, or the very rich?

Think about target audience and who will buy the product ◦ Who is the target audience

for the new Call of Duty game?

◦ Who is the target audience for the Twilight series?

Factors of Production

There are four resources- land, capital, labor, and entrepreneurs, that are needed to produce the goods and services we want.

Land

“gifts of nature”Natural resources not

created by humans Includes: deserts,

fertile fields, forests, mineral deposits, livestock, sunshine, climate

Because its limited, we call is a fixed or limited supply

CapitalSometimes called

CAPITAL GOODSThese are the

tools, machinery, equipment, and factories used in to produce goods and services ◦These were

themselves once the result of production

Labor People

with all their efforts, abilities, and skills

Entrepreneurs Risk takers in

search of profits who does something new with existing resources

Driving force behind the economy because they start a new business or bring new products into the market

The Scope of Economics Economics is a social science

because it deals with the behavior of people as they deal with scarcity

Four elements to the study of Economics: description, analysis, explanation, and prediction

Description Describes economic activity GROSS DOMESTIC PRODUCT

[GDP]: dollar value of all final goods, services, and structures produced within a country’s borders in a 12-month period ◦This is the most COMPREHENSIVE

measure of a country’s total output and measures nation’s economic health

Analysis Helps to discover why things

work and how things happen, and why things are the way they are

Examples: ◦Why are gas prices so high?◦Why are not enough wii made? And

how does this affect the price of a wii system?

Explanation They communicate knowledge

after they analyze something ◦Examples:

Gas prices are high because the United States stopped importing gasoline from Venezuela.

Orange juice prices went up because Florida suffered a freeze two weeks ago and they lost a major part of their crop

Corn is so cheap because many farm and factories produced corn to the point that there is more corn that is needed.

Prediction Making smart guesses about

what might occur in the future◦Examples:

Economists predict that house values will continue to decrease in the next two years as more and more homes go on foreclosure.

Economists can predict that based on previous sales of the wii system, coming up with a newly upgraded system will sell out within a few days.