Unit 1: Fundamental Economic Concepts

1. Unit 1: Fundamental Economic Concepts Chapter 1: What Is Economics?

2. Chapter 1: What Is Economics? • Economics is the study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources.

3. Chapter 1: What Is Economics? • Scarcity is the condition that results from society not having enough resources to produce all the things people would like to have. • Need is a basic requirement for survival and includes food, clothing, and shelter. • Want is a way of expressing a need.

4. Chapter 1: What Is Economics? • TINSTAAFL “There Is No Such Thing As AFree Lunch” – resources are limited, virtually everything we do has a cost, even when it seems as if we are getting something for free.

5. Chapter 1: What Is Economics? 3 Basic Questions every society must answer 1. What to produce? 2. How to produce? 3. For whom to produce?

6. Chapter 1: What Is Economics? Factors of Production – resources required to produce the things we would like to have. 1. Land 2. Capital (money and machinery) 3. Labor 4. Entrepreneurs

7. Chapter 1: What Is Economics? Trade Offs and Opportunity Costs • Trade Offs – alternative choices • Opportunity Costs – the costs of the next best alternative use of money, time, or resources when one choice is made rather than another → the opportunity cost is the product(s) you gave up. ** Even time has an opportunity cost → you take an economics class. Your opportunity cost is the other classes you could have taken at the same time period.

8. Chapter 1: What Is Economics? • We can see trade offs and opportunity costs by constructing a decision-making grid. Lets say you have $50.00. How do you spend it?

9. Chapter 1: What Is Economics? Decision-Making Grid

10. Chapter 1: What Is Economics? • Economic Products are goods and services that are useful, relatively scarce, and transferable to others. • Goods are an item that is economically useful or satisfies an economic want. • Consumer Good is intended for final use by individuals. • Capital Good is when manufactured goods are used to produce other goods and services they are called capital goods.

11. Chapter 1: What Is Economics? • Service is work that is performed for someone. • Consumer is a person who uses goods and services to satisfy wants and needs. • Value refers to a worth that can be expressed in dollars and cents. **Scarcity is required to have value. • Utility – in order for something to have value, it must also have utility or the capacity to be useful and provide satisfaction.

12. Chapter 1: What Is Economics? • Durable Good is any good that lasts 3 years or more when used on a regular basis (consumer and capital goods). • Non-Durable Good is an item that lasts less than 3 years when used on a regular basis.

13. Chapter 1: What Is Economics? • Paradox of Value is the situation where some necessities, such as water, have little monetary value, whereas some non-necessities, such as diamonds, have a much higher value. • Economic Growth occurs when a nation’s total output of goods and services increases over time.

14. Chapter 1: What Is Economics? • Productivity is a measure of the amount of output produced by a given amount of inputs in a specific period of time. Productivity goes up whenever more output can be produced with the same amount of inputs in the same amount of time. ** Is usually applied to labor, but applies to all factors of production. • Division Of Labor takes place when work is arranged so that individual workers do fewer tasks than before → assembly lines

15. Chapter 1: What Is Economics? • Specialization takes place when factors of production perform tasks that they can do relatively more efficiently than others. • Human Capital is the sum of the skills, abilities, health, and motivation of people. • Economic Interdependence means that we rely on others, and others rely on us, to provide the goods and services that we consume.

16. Chapter 1: What Is Economics? The End