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Bell Ringer You inherit 20 tons of steel and need to sell it by making it to anything possible to sell for the most money possible. Answer the 3 questions: WHAT will you make ? HOW will you make it? WHO do you intend to buy it? Scarcity and the Science of Economics Chapter 1, Section 1 Students will be able to: Recognize the fundamental economic problem. Examine the three basic economic questions every society must face. 1 Key Terms: Scarcity: Scarcity: the condition that results from not having enough resources to produce all the things that people would like to have. or “the condition that exists when wants exceed resources available to satisfy wants.” wants.” Which definition sounds better to you? Wants vs. Needs WANTS A way of expressing a need. -unlimited? NEEDS A basic requirement for survival -food, clothing, shelter -fixed? Hands Up Q: Is being hungry for pizza a want or need? Discussion Q: Which uses more resources wants or needs? Are wants unlimited? TINSTAAFL “Buy one, get one free” free” “Free samples” samples” “Free and reduced school lunch” lunch” - “Free” Free” often means “Without explicit cost to the consumer” consumer” Someone has to pay the farmer, the processor, the trucker, the preparer Mysteriously omitted from discussion; Who has to dispose of it? What are those costs? 2 Three Basic Questions Scarcity forces producers to answer these 3 questions: WHAT to produce? HOW to produce? FOR WHOM to produce? WHAT to produce The things produced tell us what society values. Use the steel in New Quahog for guns or irrigation pipes? HOW to produce What labor resources should be used to produce something? - Major goal: reduce cost of making something (overhead) which makes a manufactured item less expensive and therefore available to more people. 3 FLIGHT OF THE CONCHORDS They're turning kids into slaves They're turning kids into slaves just to make cheaper sneakers But what's the real cost, cause the sneakers don't seem that much cheaper Why are we still paying so much for sneakers when you got little kid slaves making them What are your overheads? FOR WHOM to produce WHO’ WHO’s wants or needs should we attempt to satisfy? a. The people who can pay for wants b. The people who can have someone else pay for their needs c. Everyone d. No one, I am keeping the steel for myself. Four FACTORS of PRODUCTION The resources required to produce the things we would like to have: CAPITAL LAND LABOR ENTREPENEURSHIP 4 LAND “gifts of nature” nature” Natural resources, anything not created by humans. Hands Up: Land or not? - Forests - livestock - climate Is there enough land to feed everyone on the planet? y/n CAPITAL The tools, equipment, machinery and factories used in the production of goods and services* These are capital goods, which is not to be confused with financial capital* which is money used to buy capital goods. * a.k.a. the means of production LABOR This category includes all people except entrepreneurs. The cost of labor varies from place to place, so jobs go to ASIA. 5 Entrepreneurs People who risk their money to make more money. Homer the Entrepreneur Identify the Four Factors in School What are the four factors of production? LET’ LET’S LEAVE ECONOMICS CLASS Land Labor Entrepreneurs Capital 6