Economics – Basic Concepts • Chapter 1 Notes The Fundamental Economic Problem • Scarcity is the condition where unlimited human wants face limited resources. • Economics is the study of how people satisfy wants with scarce resources. • Needs are required for survival; Wants are desired for satisfaction. • Someone has to pay for production costs, so There Is No Such Thing As A Free Lunch • Opportunity - Cost 3 Basic Questions • What must we produce? –Society must choose based on its needs. • How should we produce it? –Society must choose based on its resources. • For whom should we produce? –Society must choose based on its population and other available markets. Factors of Production • Land: – Society’s limited natural resources • Capital: – Means by which something is produced • Money, tools, equipment, machinery… • Labor: – The workers who apply their efforts, skills, abilities to production • Entrepreneurs: – Risk-takers who combine the above 3 Gross Domestic Product • The dollar value of all final goods and services, and structures produced within a country’s borders in a 12-month period. BASIC ECONOMIC CONCEPTS Chapter 1, Section 2 Economic Products • Goods and services that are useful, relatively scarce, and transferable to others. • Because they are scarce, they command a price. Consumer Good • An item that is useful or satisfies an economic want Capital Good • Manufactured goods that are used to create other goods and services. Service • Work that is performed for someone Consumers • A person who used goods and services Value • Worth that can be expressed in dollars and cents. of Value • Some necessities have little value while other non-necessities have great value So, what makes something valuable? • Scarcity – do you want more than is available? • Utility – is it useful? Does it provide satisfaction? The Circular Flow of economic activity • Markets are locations (or mechanisms) for buyers and sellers to trade Factor Market: Where people earn their income Product Market: Where people use their income to buy stuff