Understanding Economics Basics: Scarcity, Wants, and Production

1. What is Economics? Chapter 1

2. Basic Definition • Study of how people try to fulfill their wants through the use of scarce resources.

3. Fundamental Problem • Scarcity • Everyone has this problem • Condition that results from society not having enough resources to fulfill everyone’s wants and needs

4. Need • Basic requirement for survival • Food, clothing, shelter

5. Want • Not needed for survival • Another way of saying you “need” something

6. TINSTAAFL • “There Is No Such Thing As A Free Lunch” • Means nothing is free because we have limited resources.

7. 3 Basic ?’s • What to Produce? • How to Produce? • For Whom to Produce?

8. Factors of Production • Land • Labor • Capital • Entrepreneurship

9. Land • Natural resources not created by humans. • Ex. Grass, dirt, fields, forests, animals, etc.

10. Capital • Tools, equipment, machinery, and factories used to make goods and services. • Can also be money – financial capital

11. Labor • People with all their efforts, abilities, and skills. • IOW – People who work or perform a job.

12. Entrepreneurs • A risk-taker in search of profits who does something new with existing resources. • Starts a new business or creates a new product.

13. Production • When all 4 factors of production (land, labor, capital, & entrepreneurship) are present. • Creates a good or service.

14. Good • An item that is economically useful or satisfies and economic want. • Tangible • Ex. iPod, stapler, shoes, car, etc.

15. Service • Work that is performed for someone. • Intangible • Ex. Doctors, Lawyers, Teachers, Cashiers, Mechanic, etc.

16. Consumer • Person who uses goods and services to satisfy their wants and needs.

17. $$$Value$$$ • Worth that can be expressed in dollars and cents.

18. Paradox of Value • Situation where some necessities (ex. Water) are cheap and some luxuries (ex. Diamonds) are expensive.

19. Problem is that scarcity by itself is not enough to create value.

20. Utility • The capacity to be useful and provide satisfaction. • Makes something have true value.

21. Utility varies from one person to another. • What is useful to one person is not useful to someone else.

22. Wealth • Accumulation of products that are tangible, scarce, and transferable from one person to another.

23. Goods are included in wealth but services are not.

24. Circular Flow of Economic Activity • Diagram showing how wealth flows through the economy.

25. 2 Types of Markets • Factor Markets • Markets where resources are bought and sold • Product Markets • Markets where producers sell their goods and services to consumers

26. Economic Growth • When a nation’s goods and services increase over time.

27. Productivity • Measure of how much output is produced from how much input is used. • One of the things that increases economic growth.

28. Division of Labor • Splitting up work so that workers do fewer tasks than before.

29. Specialization • When factors of production perform tasks more efficiently than others.

30. Trade-offs • Alternative choices • Ex: Snickers or Milky Way • Blue Jeans or Khakis • Dinner or a Movie

31. Opportunity Cost • Cost of the next best alternative use of money, time, or resources when one choice is made over another.

32. Production Possibilities Curve • A graph representing all the goods and services that can be produced by a country.

33. See graph on overhead

34. Cost-Benefit Analysis • Compares the cost of an action to the benefits received. • Think about what you’ll get from what you want to do.

35. See chart on overhead