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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.