What is economics?

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What is economics? The study of choice under the
conditions of scarcity.
Why is economics important? It teaches each of us
how to make the best possible choices with the
resources that we have available to us.
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What is Scarcity?!?!?
Definition The concept that there are limited
resources for unlimited wants
Needs vs. Wants ü Need- Anything that is a
necessity for survival Examples Air, water,
food ü Want- Anything that we desire, but is not
needed for survival Examples Cars, Games,
Computers
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Goods and Services

• Service- Actions or activities that one person
  performs for another.
• Examples Haircut and dental check-up

• Good- Physical objects
• Examples Clothes and shoes

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Shortage

• A shortage occurs when producers will not or
  cannot offer goods and services at the current
  price.
• Examples Seasonal items, trendy items

What is the difference between scarcity and
shortage? Scarcity is a permanent condition,
where shortage is a temporary or
long-term result of producers
choosing not to produce a good or
service.
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All the resources used to create products are
known as the factors of production.
The Three Types of Factors of Production
Land All natural resources
Labor Effort put into a task by a person that is
paid
Capital oPhysical Capital-Human-made objects
used to create other goods and services oHuman
Capital- Knowledge and skills that a person
gains through education and experience
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Who combines the factors of production and
actually makes a product that we want to buy?!?!?!

• Entrepreneur- Ambitious leader who combines the
• factors of production
• to create new goods and services.

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Chapter 1, Section 2 Opportunity Cost

• Trade-offs- All the alternatives that we give up
  whenever we choose one course of action over
  another.
• All individuals, businesses, and governments make
  decisions that involve trade-offs.
• Examples of each type of decision
• Individual Movie or Work
• Business Cows or Corn
• Government Guns or Butter
• Choosing is Refusing

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GUNS OR BUTTER?
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United States Budget Break-Up
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Opportunity Cost The most desirable alternative
given up as the result of a decision. The next
best thing!! There is only ONE opportunity cost
for every decision whereas there are THOUSANDS of
trade-offs!
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Q.Why use a decision-making grid?A.There are
many times in life that the benefits and
drawbacks of decisions are unclear. Putting your
options down on paper helps to clarify your
choices and the consequences of these choices!
Decision-making grids can help you to make better
choices!
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Thinking at the Margin Deciding whether to do
or use one additional unit of some resource. "a
little more or a little less" or "the next
unit"When your decision is not all or nothing
you want to consider thinking at the margin.
Considering what one more unit of something
will cost you. When your cost outweighs your
benefits, you will stop adding units.
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What can we learn from looking at a Production
Possibilities Graph/Frontier?

• Efficiency- Making the best possible use of
  resources (any point on the PPF)
• Underutilization/Inefficiency- Misuse or waste
  of resources (any point inside the PPF)
• Growth- Expanding an economys ability to
  produce (shift of the entire curve to the right
  or any point to the right of the PPF)
• New Technology/Innovation
• Increase in Resources
• Cost- Alternative given up as a result of a
  decision. Every point on the PPF indicates a
  cost in on item or another.

Law of Increasing Costs- As you shift factors of
production from making one good or service to
another, the cost of producing the second item
increases.
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Connecting the Content Economics is the study
of choice under that conditions of scarcityis a
condition in which there exists limited resources
to meet unlimited wantsare desirable, but
unnecessary goods and servicesare created by
using the factors of production are divided into
three categories known as land, labor and
capital are brought together by ambitious
leaders known as entrepreneurstry to maximize
their production possibilities by efficiently
handling their available resources.