Low Soo Peng Economics Foundations

Unit 1: Foundations of Unit 1: Foundations of EconomicsEconomics

What comes to your What comes to your mind when you hear the mind when you hear the

word SCARCE?word SCARCE?

(video about scarcity)(video about scarcity)

What is Economics?What is Economics?

““A science that deals with the A science that deals with the allocation, or use, of scarce allocation, or use, of scarce resources for the purpose of resources for the purpose of fulfilling society’s needs and wants.” fulfilling society’s needs and wants.” – Addison-Wesley– Addison-Wesley

OBJECTIVES 1.1OBJECTIVES 1.1

EXPLAIN why scarcity and choice are EXPLAIN why scarcity and choice are basic problems of economicsbasic problems of economics

IDENTIFY land, labor, and capital as the IDENTIFY land, labor, and capital as the three factors of production, and identify the three factors of production, and identify the two types of capitaltwo types of capital

EXPLAIN the role of entrepreneursEXPLAIN the role of entrepreneursEXPLAIN why economists say all EXPLAIN why economists say all

resources are scarceresources are scarce

What is Economics?What is Economics?

So then the big two concepts are So then the big two concepts are that:that:Resources are scarce!Resources are scarce!Society has unlimited needs and Society has unlimited needs and

wants!wants!Economics decides the “best” way of Economics decides the “best” way of providing one to the otherproviding one to the other

VOCABULARY:VOCABULARY:

NeedNeedWantWantEconomicsEconomicsGoodsGoodsServicesServices

ScarcityScarcity

DefinitionDefinitionA situation in which the amount A situation in which the amount

of something actually available of something actually available would not be sufficient to satisfy would not be sufficient to satisfy the desire for it, if it were the desire for it, if it were provided free of charge.provided free of charge.

… … MORE VOCABULARYMORE VOCABULARY

ShortageShortageFactors of ProductionFactors of ProductionLandLandLaborLaborCapitalCapitalPhysical CapitalPhysical CapitalHuman CapitalHuman Capital

Factors of ProductionFactors of Production

There are 4 factors that must all be There are 4 factors that must all be used to produce anythingused to produce anythingNatural Resources (also referred to Natural Resources (also referred to

as “land”)as “land”)


There are 4 factors that must all be There are 4 factors that must all be used to produce anythingused to produce anythingLabor – effort of a person for which Labor – effort of a person for which

they are paidthey are paid


There are 4 factors that must all be There are 4 factors that must all be used to produce anythingused to produce anythingCapital – human-made resources Capital – human-made resources

used to create other goodsused to create other goods


3 Kinds of Capital3 Kinds of CapitalPhysical Capital – Also called Physical Capital – Also called Capital GoodsCapital Goods, objects that are , objects that are used to produce other goods used to produce other goods


3 Kinds of Capital3 Kinds of CapitalHuman Capital – knowledge or Human Capital – knowledge or skills workers get from education skills workers get from education and experience and experience


There are 4 factors that must all be There are 4 factors that must all be used to produce anythingused to produce anythingEntrepreneurship – person who Entrepreneurship – person who

takes a risk in combining the other takes a risk in combining the other 3 factors to create a new good3 factors to create a new good

VOCABULARY CONTINUED…VOCABULARY CONTINUED…

EntrepreneursEntrepreneurs

FACTORS of PRODUCTIONFACTORS of PRODUCTION

Example of FRENCH FRIES … page 6Example of FRENCH FRIES … page 6 IN N OUTIN N OUT

Making Economic DecisionsMaking Economic Decisions

Every decision we make involves Every decision we make involves trade-offs – trade-offs – alternatives that we alternatives that we must give up when we make a must give up when we make a choicechoiceExample – “I could stay up for 3 Example – “I could stay up for 3

hours playing Halo, study, or sleep.”hours playing Halo, study, or sleep.”

PROFILE – Gary Becker!PROFILE – Gary Becker!

Read p. 7 about Gary Becker’s thoughts about the “marriage market”… hmmm… Then discuss with neighbor:

1. Do you agree or disagree that economics guides even life’s most personal decisions???

1.1 QUIZ – get a partner!1.1 QUIZ – get a partner!Number your paper 1 - 6Number your paper 1 - 6

1. Which of the following are factors of 1. Which of the following are factors of production?production?a. Capital and Landa. Capital and Landb. Scarcity and shortagesb. Scarcity and shortagesc. Technology and productivityc. Technology and productivityd. economics and business decisionsd. economics and business decisions

Answer is …Answer is …

a. capital and landa. capital and land

Next question …Next question …

2. Which of the following is an example of 2. Which of the following is an example of using physical capital to save time and using physical capital to save time and money?money?a. hiring more workers to do a job?a. hiring more workers to do a job?b. building extra space in a factory to simplify b. building extra space in a factory to simplify

productionproductionc. switching from oil to coal to make c. switching from oil to coal to make

production cheaperproduction cheaperd. lowering workers’ wages to increase profitsd. lowering workers’ wages to increase profits


b. building extra space in a factory to b. building extra space in a factory to simplify productionsimplify production

next question …next question …

3. To what part of an industry does a 3. To what part of an industry does a worker’s education contribute?worker’s education contribute?a. technologya. technologyb. physical capitalb. physical capitalc. human capitalc. human capitald. scarce resourcesd. scarce resources


c. human capitalc. human capital

next question …next question …

4. Which of the following is an 4. Which of the following is an entrepreneur?entrepreneur?a. a person who earns a lot of money as a a. a person who earns a lot of money as a

singer or dancersinger or dancerb. a person who creates a game and sells it b. a person who creates a game and sells it

to a game manufacturerto a game manufacturerc. a person who starts an all-organic cleaning c. a person who starts an all-organic cleaning

supplies business that employs otherssupplies business that employs othersd. a person who works as a highly paid d. a person who works as a highly paid

computer programmercomputer programmer


c. a person who starts an all-organic c. a person who starts an all-organic cleaning supplies business that employs cleaning supplies business that employs othersothers

Next …Next …

5. What is the difference between a 5. What is the difference between a shortage and scarcity?shortage and scarcity?a. A shortage can be temporary or long-term, a. A shortage can be temporary or long-term,

but scarcity always exists.but scarcity always exists.b. A shortage results from rising prices; b. A shortage results from rising prices;

scarcity results from falling prices. scarcity results from falling prices. c. A shortage is a lack of all goods and c. A shortage is a lack of all goods and

services; scarcity concerns a single item.services; scarcity concerns a single item.d. There is no real difference between a d. There is no real difference between a

shortage and scarcityshortage and scarcity

answer …answer …

a. A shortage can be temporary or long-a. A shortage can be temporary or long-term, but scarcity always exists!term, but scarcity always exists!

next….next….

6. What does an economist mean by the 6. What does an economist mean by the term LAND?term LAND?a. farmland onlya. farmland onlyb. food crops grown on farmland as well as b. food crops grown on farmland as well as

the farmland itselfthe farmland itselfc. goods and services that are produced form c. goods and services that are produced form

the landthe landd. all natural resources used to produce d. all natural resources used to produce

goods and servicesgoods and services

answer …answer …

d. all natural resources used to produce d. all natural resources used to produce goods and services!goods and services!