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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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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
    • 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???
Since resources are scarce, everything we do has a cost
  • Nothing is free
  • Cut costs in one area, means raised cost in another
  • Buy 2, get 1 free…Mhmmmmm
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