Transcript Chapter 1
Chapter 1
What is Economics
Basic Problem in Economics
What is Economics Study of how individuals, families, business, and societies us limited resources to fulfill unlimited wants In a simple form its balancing needs versus wants.
What is a Need Anything needed for basic survival. What is a Want Everything else.
The Economic Problem
Choice In a perfect world everybody could get anything they want.
Limited availability of resources, however forces people, businesses, and governments to make choices.
Ex. Deciding whether to pay bills with your paycheck or go out.
Ex. Deciding whether to spend more tax money invading countries or fixing health care
The Economic Problem
Scarcity The need to make choices arises because everything that exists is limited. Although some more than others.
Generally speaking, the more scarce something is, the more people want it, thus the more it costs. Ex. Oil, diamonds, etc… Basically, people do not and cannot have enough time, money, and other resources to satisfy their every want Even the rich and wealthy face scarcity due to the lack of time to do everything with their money that they want to.
Factors of Production
In Economics, scarce resources are known as the factors of production.
Resources needed to produce goods and services.
Good Tangible items that people buy Service Activities done for others for a fee.
Factors of Production
Land Any natural resource present without human intervention Includes surface land, water, animals, forests, minerals, oil Labor Work (human resource) people do.
Anyone who works to produce a good or service
Factors of Production
Capital Manufactured goods used to make other goods and services.
Ex. Machines used to build a car are capital. The car itself is a manufactured good Increasing and improving capital increases productivity.
The amount to produce greater quantities of goods and services in better and faster ways, Entrepreneurship The ability of individuals to start up a business To introduce new products and processes
Assignment
1). Describe a situation in which a capital good has improved your personal productivity.
2). Is air a scarce resource? Yes or no. Why or why not?
3). List the 4 factors of production and give me two example of each that were not mentioned in class.
Trade-Offs
Exchanging one good or service for another is called as trade-off.
Individuals, families, businesses, and societies are forced to make trade-offs every time they use resources one way and not another
Opportunity Costs
The result of the trade-off is what you give up in order to get or do something else.
Opportunity costs is the value or the next best alternative that had to be given up for the chosen action.
Ex. When you decide to study Economics for an hour, you are giving up any other activities you could have done during that hour. The value of that given up activity is the opportunity.
Production Possibility Curve
Like people, companies and governments must make trade-offs as well. Economists use PPC’s to the show the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time. These graphs help companies determine how much of an item to produce and reveling the trade-offs and opportunity costs involved in each decision.
•Classic Example— military spending vs. domestic programs (“guns or butter”) •Using a production possibilities curve, a producer can decide how to use resources.