Unit 1: What is
Economics?
Learning Objectives:
• Describe the nature of human wants and how they are satisfied.
• Identify and define the four factors of production.
• Define the meanings of scarcity and opportunity cost.
• Describe the major goal of business.
• Identify the basic economic decisions facing all societies.
• Describe the two branches of economics.
What is Economics?
◦Social science that studies how
people decide to use scarce
resources to satisfy their
wants.
First ASK YOURSELF…
?What do I want?
Lets draw it out…
Factors of Production
 Land
 Labor
 Capitol
 Entrepreneurship
Land Resources

Land
Factors of Production
Labor Resources
Land
Labor
Factors of Production
Capitol Resources
Land
Labor
Factors of Production
Capital
Then ASK YOURSELF…
• What good are all those resources
if no one decides to utilize them?
• What do economists call the people
who utilize resources?
Then ASK YOURSELF…
?What does scarce mean?
Scarcity: A situation in
which an inequality exists
between wants and the
resources available to satisfy
them.
With a partner…
Is a high-scoring basketball player a scarce resource?
Is a talented movie star who is not popular a scarce
resource?
Is water a scarce resource?
Is oil a scarce resource?
If yes, were water
and oil always
scarce resources?
So what does it all mean?
Two things!
1. Resources are scarce!
2. Society has unlimited needs
and wants!
Economics decides the “best”
way of providing one to the other
Making Economic Decisions
 Trade-offs
–
alternatives that we must
give up when we make a choice
◦Example – “I could stay up for
3 hours playing Halo, study, or
sleep.”
Making Economic Decisions
 The
most desirable of the
options you pass up is called the
Opportunity Cost
 Halo,
study or sleep?
Making Economic Decisions

What other option do you have other than
using 3 hours for one task?

You could split your time among multiple
activities!

Thinking at the Margin – decision
involving adding one unit and subtracting
one unit, rather than all or nothing
Making Economic Decisions

There is a point at which you are paying the
same increase in cost, but seeing lower benefits

You must make the decision as to whether the
cost is worth it

This same process is used by businesses and
consumers to make decisions
Section 1.3 – Production Possibilities Curves
GRAPHS….

WHY do graphs sometimes show
information more clearly than text or
tables?
Production Possibilities
- shows
alternatives to what an
economy can produce
Production Possibilities
Production Possibilities
 To
move
from one
point to
another, the
economy
must make
trade-offs
Production Possibilities

Any point along the line shows the
economy operating at maximum
efficiency

Any point below the line is
underutilization – they are not getting
all that they could

Any point above the line is presently
impossible, until new resources are
available
Production Possibilities
 Why
does the graph curve
instead of making a straight line?
◦Law of Increasing Costs – as
production increases for one
item, more and more resources
are necessary to increase
production of the second item!
The OPPORTUNITY COST
increases…

Number your paper 1 – 4

1. A production possibilities curve shows
the relationship between the production
of:
◦
◦
◦
◦
a.
b.
c.
d.
farm goods and factory goods
two types of farm goods
two types of factory goods
any two categories of goods
quiz time 

d. any two categories of goods.
answer

2. The line on a production possibilities
curve showing the relative amounts of
two types of goods produced using all
resources is called the
◦
◦
◦
◦
a.
b.
c.
d.
production possibilities frontier
opportunity cost line
utilization of resources
maximum possible production line
next …

a. production possibilities frontier
answer …

3. The law of increasing costs means that
as production shifts from one item to
another,

◦ a. the cost of production gets cheaper and
cheaper.
◦ b. the cost of producing an item stays the
same no matter how many are produced.
◦ c. more and more resources are necessary to
increase production of the second item
◦ d. the land costs of increasing production rise
much more steeply than do the labor costs
question …

c. more and more resources are
necessary to increase production of the
second item
answer is …

4. The curve usually seen in a production
possibilities frontier can be explained by:
◦
◦
◦
◦
a.
b.
c.
d.
growth in the economy
underutilization of resources
increasing an economy’s efficiency
the law of increasing costs
and last question …

d. the law of increasing costs!
final answer is …