Chapter 1: What is Economics? Section 1. Slide 2 Copyright © Pearson Education, Inc.Chapter 1, Section 1 Objectives 1.Explain why scarcity and choice.

Chapter 1: What is Economics?Chapter 1: What is Economics?Section 1Section 1

Chapter 1: What is Economics?Chapter 1: What is Economics?Section 1Section 1

Slide 2Copyright © Pearson Education, Inc.Chapter 1, Section 1

ObjectivesObjectives

1. Explain why scarcity and choice are the basis of economics.

2. Describe what entrepreneurs do.

3. Define the three factors of production and the differences between physical and human capital.

4. Explain how scarcity affects the factors of production.

Slide 3Copyright © Pearson Education, Inc.Chapter 1, Section 1

Key TermsKey Terms

• need: something essential for survival• want: something that people desire but

that is not necessary for survival• goods: the physical objects that someone

produces• services: the actions or activities that one

person performs for another• scarcity: the principle that limited amounts

of goods and services are available to meet unlimited wants

Slide 4Copyright © Pearson Education, Inc.Chapter 1, Section 1

Key Terms, cont.Key Terms, cont.

• economics: the study of how people seek to satisfy their needs and wants by making choices

• shortage: a situation in which consumers want more of a good or service than producers are willing to make available at particular prices

• entrepreneur: a person who decides how to combine resources to create goods and services

• factors of production: the resources that are used to make goods and services

Slide 5Copyright © Pearson Education, Inc.Chapter 1, Section 1

Key Terms, cont.Key Terms, cont.

• land: all natural resources used to produce goods and services

• labor: the effort people devote to tasks for which they are paid

• capital: any human-made resource that is used to produce other goods and services

• physical capital: the human-made objects used to create other goods and services

• human capital: the knowledge and skills a worker gains through education and experience

Slide 6Copyright © Pearson Education, Inc.Chapter 1, Section 1

IntroductionIntroduction

• How does scarcity force people to make economic choices?– Scarcity forces all of us to make choices by

making us decide which options are most important to us.

– The principle of scarcity states that there are limited goods and services for unlimited wants. Thus, people need to make choices in order to satisfy the wants that are most important to them.

Slide 7Copyright © Pearson Education, Inc.Chapter 1, Section 1

Scarcity and Choice ActivityScarcity and Choice Activity

• Purpose of this activity is to help you to become familiar with the three economic terms: Scarcity, productive resources, and opportunity costs.

Slide 8Copyright © Pearson Education, Inc.Chapter 1, Section 1

ScarcityScarcity

• scarcity: the principle that limited amounts of goods and services are available to meet unlimited wants and needs

Slide 9Copyright © Pearson Education, Inc.Chapter 1, Section 1

Factors of Production/Production ResourcesFactors of Production/Production Resources

• Productive resources (factors of production): land, labor, capital – resources used to make goods and services

Slide 10Copyright © Pearson Education, Inc.Chapter 1, Section 1

Trade-offs and Opportunity CostsTrade-offs and Opportunity Costs

• Trade-off: The act of giving up one benefit in order to gain another, greater benefit

• Opportunity costs – the most desirable alternative (trade-off) given up as a result of a decision.

Slide 11Copyright © Pearson Education, Inc.Chapter 1, Section 1

Production Possibilities CurveProduction Possibilities Curve

• Production Possibilities Curve: A graph that shows alternative ways to use an economy’s productive resources

Slide 12Copyright © Pearson Education, Inc.Chapter 1, Section 1

Scarcity and ChoiceScarcity and Choice

• People satisfy their needs and wants with goods and services.

– People’s needs and wants are unlimited, yet goods and services are limited.

Slide 13Copyright © Pearson Education, Inc.Chapter 1, Section 1

Scarcity and Choice, cont.Scarcity and Choice, cont.

• Economics begins with the idea that people cannot have everything they need and want.

– The fact that limited amounts of goods and services are available to meet unlimited wants is called scarcity.• Scarcity forces people to make choices but it is

not the same as a shortage.

• Shortages are temporary while scarcity always exists.

Slide 14Copyright © Pearson Education, Inc.Chapter 1, Section 1

EntrepreneursEntrepreneurs

• Entrepreneurs play a key role in turning scarce resources into goods and services.

• Entrepreneurs are willing to take risks in order to make a profit. They:– Develop original ideas– Start businesses– Create new industries– Fuel economic growth

Slide 15Copyright © Pearson Education, Inc.Chapter 1, Section 1

Entrepreneurs, contEntrepreneurs, cont

• An entrepreneur’s first task is to assemble the factors of production: land, labor, and capital.

Slide 16Copyright © Pearson Education, Inc.Chapter 1, Section 1

Factors of Production: LandFactors of Production: Land

• Land refers to all natural resources used to produce goods and services.

• These resources include:– Fertile land for farming

– Oil

– Coal

– Iron

– Water– Forests

Slide 17Copyright © Pearson Education, Inc.Chapter 1, Section 1

Factors of Production: LaborFactors of Production: Labor

• Labor is the effort people devote to tasks for which they are paid.

• Labor includes:– The medical care provided by a doctor– The classroom instruction provided by a

teacher– The tightening of a bolt by an assembly-line

worker– The creation of a painting by an artist– The repair of a television by a technician

Slide 18Copyright © Pearson Education, Inc.Chapter 1, Section 1

Factors of Production: CapitalFactors of Production: Capital

• Capital refers to any human-made resource that is used to produce other goods and services.

• An economy requires both physical and human capital to produce goods and services.

– Physical capital includes:• Buildings• Equipment• Tools

– Human capital includes:• A college education• Training• Job experience

Slide 19Copyright © Pearson Education, Inc.Chapter 1, Section 1

Benefits of CapitalBenefits of Capital

• Capital is a key factor of production because people and companies can use it to save a great deal of time and money.

• The benefits of capital include:– Increased efficiency– Increased knowledge– Better time management– Increased productivity

Slide 20Copyright © Pearson Education, Inc.Chapter 1, Section 1

Scarce ResourcesScarce Resources

• Checkpoint: Why are goods and services scarce?

– All goods and services are scarce because the resources used to produce them are scarce.

– There are only so many natural resources available to produce particular goods.

Slide 21Copyright © Pearson Education, Inc.Chapter 1, Section 1

Scarce Resources, cont.Scarce Resources, cont.

• The amount of labor available to produce goods and services can be limited.

• Physical capital is also limited for many industries.

• Each resource may also have alternative uses. Individuals, businesses, and governments have to choose which alternative they want most.

Slide 22Copyright © Pearson Education, Inc.Chapter 1, Section 1

ReviewReview

• Now that you have learned how scarcity forces people to make economic choices, go back and answer the Chapter Essential Question.– How can we make the best economic

choices?