Chapter 1 What is Economics? Section 1 Scarcity and the Science of Economics.

Chapter 1What is Economics?

Section 1Scarcity and the Science of

Economics

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I. Explain the nature of scarcity and show its relationship to economics. A. TINSTAAFL – There is no such thing as

a free lunch.

B. Scarcity – The condition that arises because society does not have enough resources to produce all the things people would like to have.

C. Unlimited Wants – Limited Resources

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II. Describe the factors of production.

A. Land – “gifts of nature” not created by human effort.

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II. Describe the factors of production.

B. Capital – tools, equipment, and factories used in

production.

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II. Describe the factors of production.

B. Capital 1) Financial Capital – money

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II. Describe the factors of production.

C. Labor – people’s efforts, abilities, and skills.

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II. Describe the factors of production.

D. Entrepreneurs – risk taker in search of profit.

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III. Examine the three basic economic questions each society must decide.

A. What to Produce?

B. How to Produce?

C. For Whom to Produce?

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IV. Define economics and identify the four key elements within its scope.

A. Description – What is produced and who gets how much.

B. Analysis – Why are prices what they are?

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IV. Define economics and identify the four key elements within its scope.

C. Explanation – It is useful and necessary to communicate to others economic activities.

D. Prediction – Anticipating consequences of different courses of action.

END OF SECTION 1

Chapter 1What is Economics?

Section 2Trade-Offs and

Opportunity Costs

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I. Understand that trade-offs are present whenever choices are made.

A. Trade-off – An alternative choice.

B. Decision-making grid - A tool that can be used to help make

an economic decision by identifying alternatives and criteria to evaluate.

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II. Discover Opportunity Costs

A. Opportunity Cost –

The cost of the next best alternative when a choice is made.

Refers to the value of a trade-off.Incurred when trade-offs are made.

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III. Evaluate the opportunity cost of production possibilities frontiers.

A. Production Possibilities Frontier (PPF)

Diagram representing various combinations of goods and services when all resources are fully employed.

Guns and Butter

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III. Evaluate the opportunity cost of production possibilities frontiers.

C. Characteristics of the PPF

1) Illustrates the concept of opportunity costs.

2) Based on full employment of all productive resources.

3) It is used by economists as a tool for description and analysis.

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III. Evaluate the opportunity cost of production possibilities frontiers.

D. When a country produces on its PPF,

The decision to produce moremore of Product/Good A means,

LessLess of Product/Good B must be produced.

END OF SECTION 2

Chapter 1What is Economics?

Section 3Basic Economic Concepts

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I. Understand the difference between needs and wants, and goods and services. A. Need

Basic requirement for survival.Physical or emotional.Oxygen, water, and food.

B. WantMeans of expressing a need.Specific example of a need.Can live without.

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I. Understand the difference between needs and wants, and goods and services. C. Goods

Tangible commodity1) Consumer good 2) Capital good3) Durable good = 3 + years4) Non-durable good = < 3 years

D. ServiceWork that is intangible

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II. Explain the relationship among value, utility, and wealth.

A. ValueWorth expressed in dollars and cents.To have value, there has to be utility.

B. UtilityCapacity to be useful to someone.

C. WealthThe sum of economic products that

are tangible, scarce, useful, and transferable.

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III. Describe the importance of productivity.

A. ProductivityThe efficient use of productive

resources.

B. SpecializationDo whatever task you are able to do

best.

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III. Describe the importance of productivity.

C. Division of LaborWorkers perform fewer tasks more

frequently.

D. Human CapitalThe sum of skills, abilities, health, and

motivation of people.

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IV. Understand the importance of economics to the American free enterprise system.

A. Economic interdependenceActions in one part of the country or

the world have an economic impact on what happens elsewhere.

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IV. Understand the importance of economics to the American free enterprise system.

B. MarketLocation or other mechanism that

allows buyers and sellers to deal or exchange economic products.

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IV. Understand the importance of economics to the American free enterprise system.

C. Standard of livingQuality of life.

D. Free Enterprise EconomyConsumers and privately owned

businesses make the majority economic decisions.

END OF CHAPTER 1