What is What is Economics?Economics?

Chapter 1Chapter 1

Basic DefinitionBasic Definition•Study of how people try to fulfill their wants through the use of scarce resources.

Fundamental ProblemFundamental Problem•Scarcity•Everyone has this problem•Condition that results from society not having enough resources to fulfill everyone’s wants and needs

NeedNeed•Basic requirement for survival

•Food, clothing, shelter

WantWant•Not needed for survival

•Another way of saying you “need” something

TINSTAAFLTINSTAAFL•“There Is No Such Thing As A Free Lunch”

•Means nothing is free because we have limited resources.

3 Basic ?’s3 Basic ?’s1.What to Produce?2.How to Produce?3.For Whom to

Produce?

Factors of ProductionFactors of Production

•Land•Labor•Capital•Entrepreneurship

LandLand•Natural resources not created by humans.

•Ex. Grass, dirt, fields, forests, animals, etc.

CapitalCapital•Tools, equipment, machinery, and factories used to make goods and services.

•Can also be money – financial capital

LaborLabor•People with all their efforts, abilities, and skills.

•IOW – People who work or perform a job.

EntrepreneursEntrepreneurs•A risk-taker in search of profits who does something new with existing resources.

•Starts a new business or creates a new product.

ProductionProduction•When all 4 factors of production (land, labor, capital, & entrepreneurship) are present.

•Creates a good or service.

GoodGood•An item that is economically useful or satisfies and economic want.

•Tangible•Ex. iPod, stapler, shoes, car, etc.

ServiceService•Work that is performed for someone.

•Intangible•Ex. Doctors, Lawyers, Teachers, Cashiers, Mechanic, etc.

ConsumerConsumer•Person who uses goods and services to satisfy their wants and needs.

$$$Value$$$$$$Value$$$•Worth that can be expressed in dollars and cents.

Paradox of ValueParadox of Value•Situation where some necessities (ex. Water) are cheap and some luxuries (ex. Diamonds) are expensive.

•Problem is that scarcity by itself is not enough to create value.

UtilityUtility•The capacity to be useful and provide satisfaction.

•Makes something have true value.

•Utility varies from one person to another.

•What is useful to one person is not useful to someone else.

WealthWealth•Accumulation of products that are tangible, scarce, and transferable from one person to another.

•Goods are included in wealth but services are not.

Circular Flow of Economic Circular Flow of Economic ActivityActivity

•Diagram showing how wealth flows through the economy.

2 Types of Markets2 Types of Markets1.Factor Markets

Markets where resources are bought and sold

2.Product MarketsMarkets where producers

sell their goods and services to consumers

Economic GrowthEconomic Growth

•When a nation’s goods and services increase over time.

ProductivityProductivity•Measure of how much output is produced from how much input is used.

•One of the things that increases economic growth.

Division of LaborDivision of Labor

•Splitting up work so that workers do fewer tasks than before.

SpecializationSpecialization•When factors of production perform tasks more efficiently than others.

Trade-offsTrade-offs•Alternative choices•Ex: Snickers or Milky Way–Blue Jeans or Khakis–Dinner or a Movie

Opportunity CostOpportunity Cost•Cost of the next best alternative use of money, time, or resources when one choice is made over another.

Production Production Possibilities CurvePossibilities Curve

•A graph representing all the goods and services that can be produced by a country.

•See graph on overhead

Cost-Benefit AnalysisCost-Benefit Analysis•Compares the cost of an action to the benefits received.

•Think about what you’ll get from what you want to do.

•See chart on overhead