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Bell Ringer: What material things would you like to own? Make a list! Chapter 1: What is Economics? Activity: Make a list of all the things you would like to own. 1.1 The Fundamental Economic Problem Scarcity is the condition where unlimited human wants face limited resources. – There’s not enough resources to produce all we want! Economics is the study of how people satisfy wants with scarce resources. • Needs are required for survival • Food, clothing, and shelter • Wants are a way of expressing a need. A want may not be required for survival. • Pizza, house with a pool, a car with leather TINSTAAFFFL • There Is No Such Thing As A Free Lunch – Even it is FREE to us, someone has to pay for production costs. – “BOGO” – Sometime, somewhere you will pay for it! Three Basic Questions • What TO produce? Society must choose based on its need. • How TO produce it? Society must choose how a product is made. • For WHOM should we produce? Society must choose who to make it for. The Factors of Production • Factors of production are resources necessary to produce what people want or need. • Land • is the society’s limited natural resources—landforms, minerals, vegetation, animal life, and climate. • Capital • is the means by which something is produced such as money, tools, equipment, machinery, and factories. • Labor • is the workers who apply their efforts, abilities, and skills to production. • Entrepreneurs • are risk-takers who combine the land, labor, and capital into new products. • Production • is creating goods and services—the result of land, capital, labor, and entrepreneurs. The Scope of Economics A social science – Study of human behavior on satisfying unlimited wants. Description – Gross Domestic Product (GDP): the $ value of all final goods and services produced in a country in 12 mths. – Unemployment, inflation, trade, business and labor, gov’t spending, and taxes. Analysis – The “WHY and HOW” questions Explanation – Answering the HOW and WHY questions Prediction – How people are going to behave in the current market. Study for 1.1 Quiz 1) ______ is the condition where unlimited human wants face limited resources. 2) ______ is the means by which something is produced such as money, tools, equipment, machinery, and factories. 3) _____ are required for survival. 4) What does TISNTAAFL stand for? 5) What are the 3 basic economic questions? 1.2 Goods, Services, and Consumers • Economic Product • Goods and services that are useful, scarce, and transferable. • Goods • are items that are economically useful or satisfy an economic want. • Consumer: are intended by use by YOU! • Capital: manufactured goods are used to produce others goods and services. • Durable: Lasts 3 or more years when used regularly. • Nondurable: Lasts less than 3 years when used regularly. • Services • Are product or work performed for someone and are intangible. • Consumers use goods and services to satisfy wants and needs. Why is the US called “nation of consumption”? Value, Utility, and Wealth • Value • is worth expressed in dollars and cents. Scarcity by itself is not enough to create value. • PARADOX of VALUE: Why do some things have more worth than others? • Some necessities have no value & non-necessities have value • Utility • is a good’s or service’s capacity to provide satisfaction, which varies with the needs and wants of each person. • Wealth • is the accumulation of goods that are tangible, scarce, useful, and transferable to another person. • Wealth does not include services. The Circular Flow of Economic Activity • Markets are locations for buyers and sellers to trade. They are classified as local, regional, national, global, and cyberspace. A factor market is where people earn their incomes. • A product market is where people use their income to buy from producers. Product markets center on goods and services. Productivity Economic Growth – Occurs when a nation’s total output of goods and services increase. Productivity – Amount of output produced by a given amount of inputs in a specific period of time. Division of Labor – Work is arranged so that workers do fewer tasks than before. Specialization – The performance of tasks that can be done relatively efficiently than others • EX> Henry Ford’s assembly line Human Capital – Sum of skills, abilities, health, and motivation of people. • Education, health care, continuing Ed, training Investing – Businesses must invest in their employees Interdependence – We rely on others and others rely on us to provide goods and services that we consume. • EX> Writer’s Strike, Automaker Crisis Review Section 2 Notes I. II. III. IV. V. ______ is the sum of skills, abilities, health, and motivation of people. _______ is worth expressed in dollars and cents. _____ __ _____ Why do some things have more worth than others? Some necessities have no value & non-necessities have value. ______ market is where people earn their incomes. ______ are product or work performed for someone and are intangible. VI ______ are items that are economically useful or satisfy an economic want. VII _____ goods that last more than 3 years when used regularly. VIII _____ is a good’s or service’s capacity to provide satisfaction, which varies with the needs and wants of each person. IX _____ is the accumulation of goods that are tangible, scarce, useful, and transferable to another person. X _____ ___ ______ is when work is arranged so that workers do fewer tasks than before. 1.3 Trade-Offs and Opportunity Cost • Trade-offs • are the alternative choices people face in making an economic decision. A decision-making grid lists the advantages and disadvantages of each choice. • Opportunity cost • is the cost of the next best alternative among a person’s choices. The opportunity cost is the money, time, or resources a person gives up, or sacrifices, to make his final choice. • Identifying possible alternatives allows an economy to examine how it can best put its limited resources into production. • Cost-benefit analysis • helps economists evaluate alternatives by looking at each choice’s cost and benefit. • The study of economics helps people understand how a free enterprise economy makes the WHAT, HOW, and FOR WHOM decisions.