Download Chapter 1 What is Economics?

Unit 1 – Fundamental

The study of economics begins with the idea
that people cannot have everything they need
and want
◦ Need – something like air, food, or shelter that is
necessary for survival
◦ Want – an item that we desire but is not essential to
survival
 Examples: Designer bags, Starbucks, and I-Pods
Economics is the study of how people seek to
satisfy their needs and wants by making
choices
 Because people act individually, in groups,
and through governments, economists study
each of these groups

But why must people make such choices?
SCARCITY
http://www.cleanvideosearch.com/media/action/yt/watch?videoId=yoVc_S_gd_0
Goods are physical objects such as shoes and
shirts
 Services are actions or activities that one
person performs for another

All of the goods and services we
produce are scarce!



Scarcity implies limited quantities of
resources to meet unlimited wants
While one person might be able to buy
hundreds of basketballs, or pencils or
pianos, no one can have an endless supply
of everything. Sooner or later a limit is
always reached
Economics is about solving the problem of
Scarcity


Scarcity is not the same as a shortage
A shortage occurs when producers will not or
can not offer goods or services at the current
prices.
◦ Shortage is price-determined.
◦ At the current price, people want to buy more than suppliers
want to sell.
◦ Shortage is a man-made choice. Suppliers are “not willing” to
make goods available for this amount of money.
◦ Shortages often go away over time. There is just not much of
the good or resource right now.
◦ Example: A bad crop causes a shortage in rice.
◦ It’s a shortage if “they can make more.”
Scarcity always exists because
our needs and wants are
always greater than our
resources supply
Criteria
Alternatives
Rent
Noise
Safety
one-bedroom
noisy – lots of
apartment on $800/month
some crime
traffic
Main Street
one-bedroom
quiet – some
apartment on $900/month
a little crime
traffic
Peaceful Lane
two-bedroom
very quiet –
apartment on $850/month almost no
Distant Place
traffic
almost no
crime
Public
transportation
on bus line frequent
service
bus line
several blocks
away – service
limited
no public
transportation