Chapter 1: What is Economics?Essential Questions:

Unit 1: How does economics affect everyone?Chapter 1: How can we make the best economic choices?

Scarcity and the Factors of Production Scarcity and choice

Economics exists because we have unlimited wants & needs but limited resources.

____vs. _______ Which is essential for

survival? What is something we want

but can live without?

______ v. _______ Physical objects such as

________ &___________ Actions or activities such

as __________ & __________

___________ is the fundamental problem in economics Needs and wants are

___________. When one is satisfied,

others come up. Goods & services are

___________ No one can have an

________ supply of ________

This is scarcity!!

People Choose As a result of _______,

people have to ________________.

Examples: Scarce _____: play a

sport or have an after school job?

Scarce _______: save for a car or save for college?

Scarce _______: hire more workers or open a new store?

What is Economics? Economics is the study

of how people (and businesses & governments) make choices as a result of the reality of scarcity.

Scarcity ≠ shortage Scarcity is __________as a _________ Scarcity is a

fundamental _______ ____________________

A shortage is a specific situation where buyers want ________ of a _______ than sellers are willing to make available at a given _________. (more about this in chapter 6)

Who makes goods & services?: The role of the _________________ Entrepreneurs are

_________ who decide how to combine _________ to create new _______ and ________.

They are willing to assume ______ in hopes of __________________

Etymology: French word coined by Jean-Baptiste Say (French economist in the 1700s)

The Factors of _______________ The factors of production are the _________

used to make all _______ and _________ What are they?

_________ (all the natural resources needed) _________ (workers) _________ (human-made resource used to

make other goods & services) (Entrepreneurship) many textbooks also list

this as a factor of production.

Factors of Production continued Land

Land for farming Coal for mining Water for running a

hydroelectric dam Doesn’t have to be

made or produced Naturally occurring

Factors of production continued Labor

Work people do that they are paid for Doctors providing

medical care Instruction provided

by a teacher Mechanic fixing

your car Painter painting

your house

Factors continued Capital _________ (human made) used to produce

other ______ & _________ Two types:1. ___________ capital (capital goods)

1. Buildings such as a factory2. Equipment on an assembly line

2. __________ capital 1. Knowledge & skills gained by workers

Benefits of Capital Many businesses

choose to invest in capital

Increases _____________ Better equipment such

as faster computers _______for workers to

make them more _______

See the book’s dishwasher example on p. 6-7

Benefits of Capital 1. Extra __________

Saves time to be more efficient

More ______________ Learn skills that can

transfer to other activities

More _______________ Can do more in the

extra time that is freed up

Scarce Resources Remember that

__________ is ________ so everyone has to

_______________ Even french fries

Use the land to grow the potatoes

Use the water to help them grow

Use the workers to farm the land

Use the fuel to run the equipment and transport them to stores

Scarcity continued Everyone faces

scarcity Individuals Businesses Families governments

Scarcity means we have to make choices about how to best use our scarce resources

This is what economics is all about!

Can something that is abundant be scarce? YES! Things can be

scarce and abundant at the same time!

Remember, it’s not the same as a shortage!

Water Air Oil in Saudi Arabia

What makes the difference?

Is it rare? Are there

alternative uses? Choices! (mutually

exclusive?)

Section 2: Opportunity Cost Every time we _______________________,

we _____________________ to do something else!

________________ and _________________ A ___________ is giving up one benefit to

get another benefit The foregone opportunity of the most

desirable alternative is the ________________

Would you….? Sleep late or wake up early to study for

a test Sleep late or wake up early to go to

work Sleep late or wake up early to eat

breakfast Sleep late or wake up early to go on a

trip The specific opportunity costs of each

choice determined your answer.

Thinking at the Margin Many economic decisions are made at the

___________ & thinking in terms of __________: What difference will _______________ of

investment make? _________________ worker? Studying for one more hour? To decide, you can compare the costs and

benefits. This is called cost/benefit analysis You can calculate the marginal benefits and

the marginal cost. If marginal benefits are _____________ than

marginal ___________, it pays to add more units (dollars, hours, workers, etc.)

Production Possibilities Curves Remember that scarcity means that

everyone (individuals, businesses, governments) has to make choices

How should scarce resources be used? Production Possibilities curves can help

because they show the options Guns vs. butter The example of Capeland on p. 14

Comparing options

Production Possibilities Frontiers Each point on the _____ reflects a ___________ These trade-offs must be made because

______________________ If you use __________________ to make one

thing, ____________to produce more of the other

Not all points are possible given the resources available

What does it mean to be underneath the curve or outside the curve?

Production Possibilities continued What does it mean if a point is below

the curve on the production possibilities frontier?

Underutilization of resources Unemployment Old equipment?

What does it mean if a point is outside the frontier?

Can’t achieve that point given the current resources

Requires _________ in the economy Means the curve has shifted to the _________ How could you get there? __________ investment (human or physical) Build a new factory Hire more workers New _____________? The curve can also shift to the ___________

Recession Drought Increase in the cost of capital goods?

Cost Can use production

_______________ to calculate the costs of ______ about how to use ___________

How much of producing ________ will you have to give up to get more of the __________?

Law of _____________ costs: you reach a point where it takes more and more of a resource to increase production Rain forest in South America Oil in North America

(“fracking”)

THIS LAW IS WHY THE CURVE IS A CURVE and not a straight line. There’s not a 1:1 trade-off It reaches a point where there’s more and more traded off for less and less output

Remember the essential question? How can we make the best economic

choices? Trade-offs and opportunity cost The fundamental problem is scarcity That’s why economics exists