Section 1

Wants, Needs, and Choices

The basic problem in economics is how to satisfy unlimited wants with limited resources.

Section 1

Wants, Needs, and Choices (cont.)

• Economics the study of how people choose ways to use limited resources to fulfill their wants

• Economics is divided into two parts:

– Microeconomics –dealing with behavior & decision making by small units (individuals & firms)

– Macroeconomics -- dealing with the economy as a whole and decision making by large units (governments)

Section 1

Wants, Needs, and Choices (cont.)

• To economists, anything other than what people need for basic survival is a want.

• Wants & Needs

• Need (food, clothing & shelter)

• Want – everything else

• How societies choose to use their resources is the focus of economics.

Section 1

The Problem of Scarcity

Scarcity exists because people’s incomes and time are limited.

Section 1

The Problem of Scarcity (cont.)

• Choices arise because everything that exists is limited. At the same time, people have competing uses for the available resources resulting in scarcity.

• scarcity: basic economic problem that results from a combination of limited resources and unlimited wants

• Shortages are temporary, whereas scarcity is permanent.

Section 1

The Factors of Production

Scarce resources require choices about uses of the factors of production: land, labor, capital, and entrepreneurship.

Section 1

The Factors of Production (cont.)

• When economists talk about scarce resources, they are referring to the factors of production:

• Create a foldable

– Land

– Labor

– Capital

– Entrepreneurship

– Land: all natural resources, surface land & water (land, water, fish, animals, trees, and mineral deposits)

– Labor : (human resources) the work people do to produce goods and services.

– goods: tangible objects that you can touch

– services: actions that can satisfy people’s wants or needs

The Factors of Production (cont.)

– Capital: previously manufactured goods used to make other goods and services (machines, buildings & tools)

– When combined with land and labor, increases the value of all three factors and increases productivity

– Productivity the amount of output (goods and services) that results from a given level of inputs (land, labor, capital, and entrepreneurship)

The Factors of Production (cont.)

Section 1

The Factors of Production (cont.)

– Technology (sometimes added to the list of factors of production) uses science to more efficiently use land, labor and capital.

– Entrepreneurship is individuals taking risks to start new businesses.

• How much of each of these factors of production an individual has determines his or her wealth.

• Activity– Economic Decision Making and the Factors of Projection

Section 2

Trade-Offs (cont.)

• The economic choices people make involve trade-offs (sacrificing one good or service to purchase or produce another)

• The cost of a trade-off is what you give up in order to get or do something else.

• Economists call the value of the next best alternative or trade-off, opportunity cost (2nd choice)

View: What’s the Difference Between a Trade-Off and an Opportunity Cost?

Figure 2

Concept Trans 2

Section 2

Production Possibilities Curve (cont.)

• A production possibilities curve is a graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time

• Helps determine how much of each item to produce, which reveals trade-offs and opportunity costs

View: A Production Possibilities Curve

View: Production Possibilities—Guns vs. Butter

Figure 3

Section 3

Economic Models (cont.)

• Economists one’s who study how individuals, businesses and nations use their limited resources.

• Economy is the production and distribution of goods and services in a society

• Economics study of how people make choices about ways to use limited resources to fulfill unlimited wants