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Basic Econ Concepts. What is Economics ?. Most people aren ’ t satisfied Constant competition w/ others The problem is that resources are scarce. Economics is the science of scarcity Scarcity - when our wants are greater than our limited resources

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Basic econ concepts


What is economics
What is Economics?

  • Most people aren’t satisfied

  • Constant competition w/ others

  • The problem is that resources are scarce

  • Economics is the science of scarcity

  • Scarcity- when our wants are greater than our limited resources

  • We can’t have everything we desire, so we must make choices

  • Economists study choices

  • Ex:

    • We choose between buying jeans or shoes

    • Businesses choose how many people to hire

    • Governments choose how much to spend on welfare

    • Economics- The study of how people satisfy unlimited & competing wants with the use of scarce resources

Needs wants

  • Dealing w/ scarcity requires differentiating between needs & wants

  • Needs- basic requirements for survival (food, clothing, shelter, etc)

  • Want- way of expressing a need

  • You NEED food, you WANT???

  • You NEED clothes, you WANT???

3 econ questions
3 Econ Questions

  • Because of scarcity, we have to make wise decisions

  • What, How, & For Whom???

What to produce?

  • Focus on military equipment or food

  • Oil or Housing?

  • Societies cant have everything people want, so they must decide WHAT to produce

HOW to produce?

  • Mass production w/ lots of equipment & few workers?

  • Less equipment & more workers?

  • Technology saves $$$, reaches more people, but takes away jobs

FOR WHOM to produce???

  • Ex. If you produce housing, who are you making it for?

  • Workers, professional people, government employees?

Key Economic Assumptions

  • Society’s wants are unlimited, but ALL resources are limited (scarcity)

  • Due to scarcity, choices must be made. Every choice has a cost (a trade-off)

  • Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own “self-interest.”

  • Everyone acts rationally by comparing the costs and benefits of every choice

Scarcity vs shortage
Scarcity vs Shortage

  • Scarcity occurs at all times for all goods

  • Shortages - when producers won’t/can’t offer goods or services at current prices

  • Shortages are temporary


Price vs cost
Price vs Cost

  • What’s the price? vs. How much does that cost?

  • Price- Amount buyer/ consumer pays

  • Cost- Amount seller pays to produce a good

  • Investment= the money spent by BUSINESSES to improve their production (ex. Music industry)

Goods vs services
Goods vs. Services

  • Goods- physical objects that satisfy needs and wants

    1. Consumer Goods- created for final use by individual

    2. Capital Goods- manufactured goods used to produce other goods & services

  • Services- actions or activities one person performs for another (teaching, cleaning, cooking)

The 4 factors of production
The 4 Factors of Production

  • Producing goods and services requires the use of resources

  • ALL resources can be classified as one of the following 4 factors of production:

  • Land, Labor, Capitol, Entreprenuership

  • Land - All natural resources used to produce goods and services

  • Anything from “mother nature”

  • Labor – People w/ their efforts, abilities, & skills

  • Capital- tools, equipment, machinery, etc., used in the production of goods & services

    1. Physical Capital- human-made resources used to create other goods and services (tools, tractors, machinery, buildings, factories, etc.)

    2. Human Capital- skills or knowledge gained by a worker through education and experience

  • Entrepreneurship-risk takers that combine the factors of production to create goods and services.

  • Examples-Henry Ford, Bill Gates, Jay Z