What is

Economics?
How does economics
affect everyone?
Scarcity is Real
 There are so many
things you want to
buy with your money
 With limited funds,
you can’t have
everything
 Scarcity forces us all
to make choices by
deciding what is most
important to us
Scarcity and Choice
 The study of economics begins with the fact that people
cannot have everything they need and want
 A need is something essential for survival like food or
water
 A want is something we desire but that is not
necessary for survival
 People satisfy their needs and wants with goods and
services
 Goods are physical objects that someone produces
 Services are actions or activities that one person
performs for another
 Scarcity affects the choices of both the consumer, a
person who buys goods and services for personal use,
and the producer, a person who makes goods and
services
 Types of Goods
 Durable good: One that lasts three years or
more when used on a regular basis. (Cars,
equipment)
 Nondurable good: An item that lasts fewer
than three years when used on a regular basis
(Food, paper)
 Consumer good: A good intended for final
use by individuals, such as shoes, shirt, or
cars
 Capital good: A tool or good such as
machinery or equipment that is used by
businesses to produce other products
The Problem of Limits
 People’s needs and wants
are unlimited
 The fact that limited
amounts of goods and
services are available to
meet unlimited wants is
scarcity
 Scarcity forces people to
make choices ( how to
spend money, time etc…)
 Scarcity always exists
 Economics is the study of
how people seek to satisfy
their needs and wants by
making choices
Scarcity leads to 3 Economic
Questions
1. What will be produced? A society must decide
the mix of goods and services it will produce.
The goods and services a society chooses to
produce depend, in part, on the natural
resources it possesses
2. How will it be produced? Answering this
question involves using scarce resources in the
most efficient way to satisfy society’s wants
3. For whom will it be produced? Exactly how
much should people get and how should their
share be delivered to them?
 Gross Domestic Product
 Gross domestic
product (GDP) is
the monetary value
of all final goods,
services, and
structures produced
within a country’s
borders in a 12
month period
 GDP is a key
measure of a
country’s economic
health
Entrepreneurs and the Factors of
Production
 Entrepreneurs are
people who decide
how to combine
resources to create
new goods and
services
 The first task facing an
entrepreneur is to
assemble the factors
of production or the
resources used to
make all goods and
services
Factors of Production
 Land: Refers to all natural resources used to
produce goods and services
 Labor is the effort people devote to tasks for
which they are paid
 Capital refers to any human made resource
that is used to produce other goods and
services (Software is an example)
 Physical capital are human made objects
used to create other goods and services
 Human capital is the knowledge and skills a
worker gains through education and
experience
Check for Understanding

• There will be a short

quiz on Canvas
 Consumer Rights
 In 1962 John F. Kennedy sent a message to Congress
outlining the rights of consumers
 The right to safety: Protection against goods that are
dangerous to life and health
 The right to be informed: To receive information that
can be used for reasoned choice and protection against
fraud
 The right to choose: The right to be protected in
markets where competition may not always exist
 The right to be heard: The guarantee that consumer
interests will be considered when laws are being written
 The right to redress: The ability of consumers to
receive adequate payment from producers if they are
harmed by products
Making Choices
 Scarcity forces everyone to choose. But what
shapes the economic choices that people
make?
 Incentives are benefits offered to encourage
people to act in certain ways. Taxes, grades in
school, wages paid to work are all examples
of this
 Choice is also influenced by utility, or the
benefit or satisfaction gained from the use of
a good or service
 To economize is to make decisions according
to what you believe is the best combination of
costs and benefits
Trade-Offs
 Every time we choose to
do something, we give up
the opportunity to do
something else
 Trade-off is the act of
giving up one benefit in
order to gain another,
greater benefit
 At every stage of life, you
make trade-offs
 The term “guns or
butter” is used to
highlight the trade-off
decisions made by
government
Opportunity Cost
 In most trade-offs, one of the rejected
alternatives is more desirable than the rest
 Opportunity cost: The most desirable
alternative somebody gives up as the result of a
decision
Thinking at the Margin
 Many decisions require adding or subtracting one
unit
 When you decide how much more or less to do, you
are thinking on the margin
 Deciding by thinking on the margin is just like
making any other decision. You must compare the
opportunity costs and benefits.
 This decision-making process is a cost/benefit
analysis, or weighing marginal costs against
marginal benefits
 Marginal cost is the extra costs of adding one unit
 Marginal benefit is the extra benefit of adding the
one unit
Efficiency and Growth
 Economic growth occurs when a nation’s total
output of goods and services increases over
time
 Economic growth is important because as
population rises more people wants goods and
services.
 As the economy grows the standard of living can
rise for everyone
 Efficiency is the use of resources in such a way
as to maximize the output of goods and services
 Example: When people are laid off, the economy
is not operating at maximum efficiency
Productivity and Human Capital
 Productivity is the measure
of the amount of goods and
services produced with a
given amount of resources in
a specific period of time
 Productivity goes up
whenever more can be
produced with the same
amount of resources
 Human capital is the sum of
people’s skills, abilities,
health, knowledge, and
motivation
 Division of Labor
 Division of labor is a way of organizing work so that each
worker or work group completes a separate part of the overall
task
 Division of labor makes specialization possible
 Specialization takes place when factors of production perform
only tasks, they can do better or more efficiently than other
 In the U.S., increases of productivity due to the division of labor
and specialization have created a remarkable degree of
economic interdependence
 This means we rely on others, and others rely on us, to provide
most of the goods and services we consume
 Comparative Advantage: Comparative advantage refers to
the products that a country can produce more cheaply or easily
than other countries.
 Comparative advantage suggests that countries will engage in
trade with one another, exporting the goods in which they have
a relative advantage.
The Economists’
Toolbox
 Economists use numerous tools:
1. Statistics
2. Economic models: Based on assumptions and
focus on a limited number of variables. Models
help economists explain things
3. Using charts and tables
4. Using graphs
Microeconomics and
Macroeconomics
 Microeconomics is the study of the behavior of
individual players in the economy such as
individuals, families, and business
 Macroeconomics is the study of the behavior of
the economy as a whole
Check for Understanding

• There will be a short

quiz on Canvas
 Unit Review Assignment
 1) Write out all vocabulary words and definitions, by hand and on paper.
You will find the vocabulary definitions throughout the unit PowerPoint
 2) Complete the essay question outline on the paper where you have
defined the vocabulary words. The outline should be structured as
follows:
 Question: Write the question here
 Details: 4 sentences that help you answer the question. Try and use the
vocabulary words from the unit if appropriate.
 Example:
 Question: What are the factors of production? Give a small description of
each.
 Details:
 1)
 2)
 3)
 4)
 Turn in your handwritten vocabulary definitions and essay outline before
we take the vocabulary test for the unit
Unit Vocabulary
 Need  Gross Domestic
 Opportunity costs Product (GDP)
 Want  Entrepreneur
 Division of labor  Trade-off
 Human capital  Specialization
 Good  Scarcity
 Service  Factors of
 Thinking at the Production
margin  Economic growth
 Writing Test
 Test Questions:
 Short Answer (3-5 sentences) – 5 points each

1) What is meant by scarcity is real?

2) Name and describe two of the consumer
rights.
 Essay (2 paragraphs) – 20 points each

3) What are the factors of production? Give a

small description of each.