Chapter One

Vocabulary Terms and Concepts

What is Economics?• the study of how people seek to satisfy

their needs and wants by making choices

What is the difference between a want and a need?• Wants are items that we desire but are not

necessary for survival.

• Needs are something like air, food, or shelter that are necessary for survival.

How do we satisfy our wants and needs?• We buy goods and services.

What are “Goods”?• physical objects such as

clothes or shoes

What are “Services” ?• actions or activities that one person

performs for another such as haircuts or auto repair

What choices have you had to make lately?

Why do we have to make choices about which goods or services we can buy?

The resources used to make goods and services are scarce. That makes the goods and services scarce.

• What is the difference between scarcity and shortage?

• Scarcity means that there is a limited quantity of resources to meet unlimited wants and needs.

• Shortage is a situation where a good or a service is temporarily unavailable.

OUT OF STOCK

All goods and services are produced using resources. • What is the term we use in

economics that means resources?–Factors of Production: the

three(four) groups of resources that are used to make all goods and services

–What are the 3 (or four) factors of production?

Land, Labor, Capital, and (Entrepreneurship)

What is Land?• natural resources

What is Labor? • the effort that people put into

a task for which they are paid

What is Capital? • any human-made resource used to create

all other goods and services What is Physical Capital?• tools, equipment, software, factories, and

buildings

What is Human Capital?• the skills and knowledge we gain through

education and training (human-made)

What is an Entrepreneur?• the person who organizes or combines

land, labor and capital to create and market new goods and services- a business owner.

• Who do you know that owns their own business? What type of business is it?

Factors of Production Model

LAND - cotton

LABOR -seamstress

CAPITAL – thread, sewing machine.

ENTREPRENEUR –designer, business owner

GOOD – t-shirt

• I will produce _____________________

by using ____________, ____________,

(land) (labor)

and __________________.

(capital)

Trade-offs• the choices we have when faced with a

decision (sleep or study)

Opportunity Cost• the most desirable alternative given up as

the result of a decision (I chose sleep so my opportunity cost is studying)

Guns or Butter• the choices a country must make when

choosing whether to produce more or less military or consumer goods

• My ___________ is scarce so I had to choose between these trade-offs: ______ and __________. I chose _________, so my opportunity cost was _________.

Production Possibilities Curve• a graph that shows alternative ways to use

an economy’s resources

Production Possibilities Frontier• the line on the graph that shows the

maximum output possible.

military goods “guns”

consumer goods “butter”

0

Production Possibilities Frontier

• The location of the frontier is determined by the amount of resources and technology available.

• These are scarce so our ability to produce is limited.

Production Possibilities Curve

AB

C

D

Production Possibilities Curve

1 2 3 4 5 6 Q

1 2

3 4

5 6

7 8

9 1

0 1

1 Q

Consumer goods in hundred thousands

Mil

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.C

A production possibilities curve shows the opportunity cost of producing more of one type of good or service.Opportunity Cost

= 3 less military goods

1 more consumer good

.

.

A

D

Production Possibilities Curve

1 2 3 4 5 6 Q

1 2

3 4

5

6 7

8

9 Q

Consumer goods

Mil

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ds .

.

A

C

.W

E

• Any points (production) along the frontier line (A,B,C, D) is efficient and possible

• Any point (production) inside the frontier line (E) is possible but inefficient. Resources are underutilized. • Any point

outside of the frontier line (W) is not possible. We do not have the resources or the technology to produce it.

.

.B

D

Consumer goods in hundred thousands

Mil

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By adding more resources (land, labor or capital) or using the ones we have more efficiently (technology), the curve can shift outward

ECONOMIC GROWTH