Download II. Three Basic Questions III. Factors of Production

Scarcity & Science of
Economics
I. Fundamental Economic Problem
• A. Scarcity: condition that results from society
from a combination of scarce resources and
people’s virtually unlimited wants
• B. A Need: a basic requirement for survival
– Ex: Food, clothing, and shelter
• C. A Want: something we would like to have,
but isn’t necessary for survival
– Ex: I NEED to eat, and I WANT In-n-Out.
• D. TNSTAAFL everything we do
has a cost
– “There’s No Such
Thing As A Free
Lunch”
II. Three Basic Questions
• A. WHAT to produce: A society must decide
WHAT to produce…
• B. HOW to produce: find the most cost
effective way to produce goods and services
• C. FOR WHOM to produce: Society must
decide who will receive the things produced
III. Factors of Production
• A. Land: the “gi*s of
nature,” or natural
resources not created by
people
– Ex: deserts, forests, minerals,
sunshine, livestock…
– Limited in supply
• B. Capital (aka capital
goods): tools, equipment,
machinery, and factories
used in the production of
goods and services.
– Ex: bulldozers, computers…
• C. Labor: people with all
of their efforts, abilities
and skills
• D. Entrepreneur: a risk
taker in search of profits
who does something
new with existing
resources.
– A driving force of the
economy.
• Production: everything
we make requires the
four factors of
production…
IV. Scope of Economics
• A. Description: one part of economics
describes economic activity
– Gross Domestic Product (GDP): the dollar value of
all final goods, services, and structures produced
within a country’s borders in a 12-month period
• Key indicator of nation’s economic health
• B. Analysis: economics analyzes the economic
activity it describes.
– Helps us understand how things happen
• C. Explanation: telling
others why and how
things work.
• D. Prediction: economics is
the study of both what is
happening, and what
tends to happen.
– Can help predict what may
happen in the future, and
predict its effects.
SCARCITY DEBRIEF!
• How does scarcity affect your life?
Provide several examples of items you had
to do without because of limited
resources, and explain how you adjusted
to the situation.