Presentation Plus! Economics: Principles and Practices
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CHAPTER INTRODUCTION
SECTION 1 Scarcity and the Science
of Economics
SECTION 2 Basic Economic Concepts
SECTION 3 Economic Choices and
Decision Making
CHAPTER SUMMARY
CHAPTER ASSESSMENT
3
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Economics and You
The study of economics will help you
become a better decision maker–it helps
you develop a way of thinking about how
to make the best choices for you.
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to listen to Economics
and You.
4
Chapter Objectives
Section 1: Scarcity and the Science of
Economics
• Explain the fundamental economic
problem. 
• Examine the three basic economic
questions every society must decide.
5
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Chapter Objectives
Section 2: Basic Economic Concepts
• Explain the relationship among scarcity,
value, utility, and wealth. 
• Understand the circular flow of economic
activity.
6
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Chapter Objectives
Section 3: Economic Choices and
Decision Making
• Analyze trade-offs and opportunity costs. 
• Explain decision-making strategies.
7
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Study Guide
Main Idea
Scarcity forces us to make choices. We can’t have
everything we want, so we are forced to choose
what we want most. 
Reading Strategy
Graphic Organizer As you read the section,
complete a graphic organizer like the one on
page 5 of your textbook by listing and describing
the three economic choices every society must
make.
9
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information. Section 1 begins on page 5 of your textbook.
Study Guide (cont.)
Key Terms
– scarcity 
– labor 
– economics 
– entrepreneur 
– need 
– production 
– want 
– Gross Domestic
Product (GDP)
– factors of production 
– land 
– capital 
– financial capital 
10
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information. Section 1 begins on page 5 of your textbook.
Study Guide (cont.)
Objectives
After studying this section, you will be able to: 
– Explain the fundamental economic problem. 
– Examine the three basic economic questions
every society must decide. 
Applying Economic Concepts
Scarcity Why is scarcity the basic economic
problem that everyone faces?
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listen to the Cover Story.
11
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information. Section 1 begins on page 5 of your textbook.
Introduction
• According to a Harris poll, a huge
percentage of Americans think study of
economics is worth your time and effort. 
• A basic understanding of economics can
help make sense of the world around us.
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The Fundamental Economic Problem
• Whether they are rich or poor, most
people seem to want more than they
already have. 
• The fundamental economic problem facing
all societies is that of scarcity. 
• Scarcity is the condition that results from
society not having enough resources to
produce all the things people would like to
have.
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The Fundamental Economic Problem
• Scarcity affects almost every decision
we make. 
• Economics is the
study of how people
try to satisfy what
appears to be
seemingly unlimited
and competing
wants through the
careful use of
relatively scarce
resources.
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Figure 1.1
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(cont.)
Needs and Wants
• Economists often talk about people’s needs
and wants. 
– A need is a basic requirement for survival and
includes food, clothing, and shelter. 
– A want is a way of expressing a need.
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“There Is No Such Thing as a
Free Lunch”
• Virtually everything we do has a cost–even
when it seems as if we are getting
something “for free.” 
• Unfortunately, most things in life are not
free because someone has to pay for the
production in the first place. 
• Economic educators use the term
TINSTAAFL to describe this concept. 
• In short, this term means that There Is No
Such Thing As A Free Lunch.
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Three Basic Questions
• Because we live in a world of relatively
scarce resources, we have to make wise
economic choices. 
• In so doing, we
make decisions
about the ways our
limited resources
will be used.
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Figure 1.1
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WHAT to Produce
• The first question is that of WHAT to
produce. 
• A society cannot have everything its people
want, so it must decide WHAT to produce.
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HOW to Produce
• A second question is that of HOW to
produce. 
• Should factory owners use mass
production methods that require a lot of
equipment and few workers, or should they
use less equipment and more workers?
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FOR WHOM to Produce
• The third question deals with FOR WHOM
to produce. 
• After a society decides WHAT and HOW to
produce, the things produced must be
allocated to someone. 
• These questions concerning WHAT, HOW,
and FOR WHOM to produce are not easy
for any society to answer.
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The Factors of Production
• The reason people cannot satisfy all their
wants and needs is the scarcity of
productive resources. 
• The factors of production, or resources
required to produce the things we would
like to have, are land, capital, labor, and
entrepreneurs.
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The Factors of Production (cont.)
Figure 1.2

• All four factors of production are required if
goods and services are to be produced.
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Land
• In economics, land refers to the “gifts of
nature,” or natural resources not created
by humans. 
• Economists tend to think of land as being
fixed, or in limited supply. 
• Because the supply of a productive factor
like land is relatively fixed, the problem of
scarcity is likely to become worse as
population grows in the future.
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Capital
• Another factor of production is capital–the
tools, equipment, machinery, and factories
used in the production of goods and
services. 
• Such items also are called capital goods to
distinguish them from financial capital, the
money used to buy the tools and
equipment used in production. 
• Capital is unique in that it is the result of
production.
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Labor
• A third factor of production is labor–people
with all their efforts, abilities, and skills. 
• This category includes all people except for
a unique group of individuals called
entrepreneurs. 
• Unlike land, labor is a resource that may
vary in size over time.
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Entrepreneurs
• Some people are special because they are
the innovators responsible for much of the
change in our economy. 
• Such an individual is an entrepreneur, a
risk-taker in search of profits who does
something new with existing resources. 
• They provide the initiative that combines
the resources of land, labor, and capital into
new products.
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Production
• When all factors of production are present,
production, or the process of creating
goods and services, can take place.
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The Scope of Economics
• Economics is the study of human efforts to
satisfy what appear to be unlimited and
competing wants through the careful use of
relatively scarce resources. 
• As such, it is a social science because it
deals with the behavior of people as they
deal with this basic issue. 
• There are four key elements to this study:
description, analysis, explanation, and
prediction.
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Description
• Economics deals with the description of
economic activity. 
• The Gross Domestic Product (GDP) is
the most comprehensive measure of a
country’s total output and is a key measure
of the nation’s economic health. 
• Description is important because we need
to know what the world around us looks like
but it leaves many important “why” and
“how” questions unanswered.
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Analysis
• In order to answer such questions,
economics must focus on the analysis of
economic activity as well. 
• The importance of analysis is that it helps
us to discover why things work and how
things happen. 
• This, in turn, will help us deal with
problems that we would like to solve.
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Explanation
• Economics is also concerned with the
explanation of economic activity. 
• After economists understand why and how
things work, it is useful and even necessary
to communicate this knowledge to others. 
• If we all have a common understanding of
the way our economy works, some
economic problems will be much easier to
address or even fix in the future.
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Prediction
• Finally, economics is concerned with
prediction. 
• The study of economics can help to make
the best decision in many situations. 
• Because economics deals with the study of
what is or what tends to be, it can help
predict what may happen in the future, as
well as the likely consequences of different
courses of action.
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Section Assessment
Main Idea Using your notes from the
graphic organizer activity on page 5,
explain why a society must face the
choices about WHAT, HOW, and FOR
WHOM to produce.
Choices must be made as long as
wants are greater than the resources
available.
33
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to display the answer.
Section Assessment (cont.)
Describe the fundamental economic
problem.
Scarcity, the condition that results
from society not having enough
resources to produce all the things
people want, is the fundamental
economic problem.
34
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to display the answer.
Section Assessment (cont.)
List the three basic economic
questions every society must answer.
Every society must ask WHAT to
produce, HOW to produce, and
FOR WHOM to produce.
35
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Section Assessment (cont.)
Describe the factors of production.
The factors of production are land,
capital, labor, and entrepreneurs.
36
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Section Assessment (cont.)
List the four key elements of
economics.
The four key elements of economics
are description, analysis, explanation,
and prediction.
37
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Section Assessment (cont.)
Scarcity How does scarcity affect
your life? Provide several examples of
items you had to do without because of
limited resources. Explain how you
adjusted to this situation. For example,
were you able to substitute other items
for those you could not have?
38
Section Assessment (cont.)
Synthesizing Information Give an
example of a supposedly “free” item
that you see every day. Explain why
the item is not really free by stating
who or what actually pays for it.
39
Section Close
How might the element of prediction
in economics be important in your
lives?
40
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Study Guide
Main Idea
An economic product is a good or service that is
useful, relatively scarce, and exchangeable. 
Reading Strategy
Graphic Organizer As you read the section,
describe three different transactions that could
take place in the product market. Use a web like
the one on page 12 of your textbook to help you
organize your answer.
42
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information. Section 2 begins on page 12 of your textbook.
Study Guide (cont.)
Key Terms
43
– economic product 
– market 
– good 
– factor market 
– consumer good 
– product market 
– capital good 
– economic growth 
– service 
– productivity 
– value 
– division of labor 
– paradox of value 
– specialization 
– utility 
– human capital 
– wealth 
– economic
interdependence
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information. Section 2 begins on page 12 of your textbook.
Study Guide (cont.)
Objectives
After studying this section, you will be able to: 
– Explain the relationship among scarcity,
value, utility, and wealth. 
– Understand the circular flow of economic
activity. 
Applying Economic Concepts
Specialization How does specialization
increase production?
Click the Speaker button to
listen to the Cover Story.
44
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information. Section 2 begins on page 12 of your textbook.
Introduction
• Economics, like any other social science,
has its own vocabulary. 
• To understand economics, a review of
some key terms is necessary. 
• Fortunately, most economic terms are
widely used, and many will already be
familiar to you.
45
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Goods, Services, and Consumers
• Economics is concerned with economic
products–goods and services that are
useful, relatively scarce, and transferable
to others. 
• Because of these characteristics,
economic products command a price.
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Goods
• The first type of economic product is a
good–an item that is economically useful
or satisfies an economic want. 
– A consumer good is intended for final use by
individuals. 
– When manufactured goods are used to produce
other goods and services, they are called
capital goods. 
– Any good that lasts three years or more when
used on a regular basis is called a durable
good. 
– A nondurable good is an item that lasts for less
than three years when used on a regular basis.
47
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Services
• The other type of economic product is a
service, or work that is performed for
someone. 
• The difference between a good and a
service is that a service is intangible, or
something that cannot be touched.
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Consumers
• The consumer is a person who uses goods
and services to satisfy wants and needs. 
• As consumers, people indulge in
consumption, the process of using up
goods and services in order to satisfy
wants and needs.
49
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Value, Utility, and Wealth
• In economics, value refers to a worth that
can be expressed in dollars and cents. 
• Why, however, does something have value,
and why are some things worth more than
others?
50
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Paradox of Value
• At first, early economists were puzzled by a
contradiction between necessities and
value called the paradox of value. 
• The paradox of value is the situation where
some necessities, such as water, have little
monetary value, whereas some nonnecessities, such as diamonds, have a
much higher value. 
• Economists knew that scarcity is required
for value. 
• The problem was that scarcity by itself is
not enough to create value.
51
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Utility
• It turned out that for something to have
value, it must also have utility, or the
capacity to be useful and provide
satisfaction. 
• The utility of a good or service may vary
from one person to the next. 
• A good or service does not have to have
utility for everyone, only utility for some. 
• For something to have value it must be
scarce and have utility. 
• This is the solution to the paradox of value.
52
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Wealth
• Wealth, in an economic sense, is the
accumulation of those products that are
tangible, scarce, useful, and transferable
from one person to another. 
• While goods are counted as wealth,
services are not because they are
intangible. 
• However, this does not mean that services
are not useful as they may be the source
of wealth.
53
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The Circular Flow of Economic
Activity
• The wealth that an economy generates is
made possible by the circular flow of
economic activity. 
• The key feature of this circular flow is the
market, a location or other mechanism that
allows buyers and sellers to exchange a
certain economic product. 
• Markets may be local, regional, national,
or global. 
• More recently, markets have evolved in
cyberspace.
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Factor Markets
• How does this circular flow operate?

• Individuals earn their incomes in factor
markets, the markets where productive
resources are bought and sold. 
• While the
concept of a
factor market
is a simplified
version of the
real world,
nevertheless,
it is realistic.
55
Figure 1.3
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Product Markets
• After individuals receive their income from
the resources they sell, they spend it in
product markets. 
• These are markets where producers sell
Figure 1.3
their goods
and services
to consumers.
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Product Markets (cont.)
• Businesses then use this money to produce
more goods and services. 
• Markets serve as the main links between
individuals and businesses. 
• Money
provides
payments for
goods,
services, and
the factors of
production.
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Figure 1.3
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Productivity and Economic Growth
• Economic growth occurs when a nation’s
total output of goods and services
increases over time. 
• This means that the circular flow becomes
larger, with more factors of production,
goods, and services flowing in one
direction, and more payments flowing in the
opposite direction. 
• A number of factors are responsible for
economic growth, but productivity is the
most important.
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Productivity
• Everyone benefits when scarce resources
are used efficiently. 
• This is described by the term productivity,
which is a measure of the amount of output
produced by a given amount of inputs in a
specific period of time. 
• Productivity goes up whenever more output
can be produced with the same amount of
inputs in the same amount of time. 
• Productivity is often discussed in terms of
labor, but it applies to all factors of
production.
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Division of Labor and Specialization
• Division of labor and specialization can
improve productivity. 
– Division of labor takes place when work is
arranged so that individual workers do fewer
tasks than before. 
– Specialization takes place when factors of
production perform tasks that they can do
relatively more efficiently than others. 
• In regional specialization, different regions
of the country often specialize in the things
they can produce best.
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Investing in Human Capital
• One of the main contributions to
productivity comes from investments in
human capital, the sum of the skills,
abilities, health, and motivation of people. 
• Businesses can invest in training and other
programs that improve the skill and
motivation of their workers. 
• Individuals can invest in their own
education by completing high school, going
to technical school, or going to college.
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Investing in Human Capital (cont.)
• Investments in education can have
substantial payoffs. 
Figure 1.4
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Investing in the Future
• Businesses, government, and other
organizations face many of the same
choices that individuals do. 
• Investments in human capital and physical
capital can eventually increase production
and promote economic growth. 
• Faster economic growth, in turn, increases
the amount of goods and services available
to us.
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Economic Interdependence
• The American economy has a remarkable
degree of economic interdependence. 
• This means that we rely on others, and
others rely on us, to provide the goods and
services that we consume. 
• Events in one part of the country or the
world often have a dramatic impact
elsewhere. 
• We need to understand how all the parts fit
together, which is one reason why we study
economics.
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Section Assessment
Main Idea Using your notes from the
graphic organizer activity on page 12,
explain the different transactions that
take place in the product market.
The buying and selling of goods and
services, and using money from
sales to produce more goods takes
place in the product market.
65
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Section Assessment (cont.)
Discuss the relationship among
scarcity, value, utility, and wealth.
Answers will vary.
66
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Section Assessment (cont.)
Describe the circular flow of economic
activity.
67
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Section Assessment (cont.)
Explain why productivity is important
to economic growth.
When productivity goes up, more
output is produced with the same
amount of inputs in the same amount
of time.
68
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Section Assessment (cont.)
Making Comparisons What is the
difference between a durable good and
a nondurable good?
A durable good lasts three or more
years when used on a regular basis.
A nondurable good lasts for less than
three years.
69
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Section Assessment (cont.)
Drawing Conclusions In what way
do businesses and households both
supply and demand in the circular flow
model?
Businesses supply goods while
demanding resources; households
supply labor and income while
demanding goods.
70
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Section Close
Discuss ways in which your
community, state, or region
specializes in the goods and
services it provides. Why does it do
this?
71
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Study Guide
Main Idea
Trade-offs are present whenever choices are
made. 
Reading Strategy
Graphic Organizer As you read this section,
complete a graphic organizer similar to the one
on page 19 of your textbook by explaining what
you need to know to become a good decision
maker.
73
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information. Section 3 begins on page 19 of your textbook.
Study Guide (cont.)
Key Terms
– trade-off 
– opportunity cost 
– production possibilities frontier 
– cost-benefit analysis 
– free enterprise economy 
– standard of living
74
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information. Section 3 begins on page 19 of your textbook.
Study Guide (cont.)
Objectives
After studying this section, you will be able to: 
– Analyze trade-offs and opportunity costs. 
– Explain decision-making strategies. 
Applying Economic Concepts
Opportunity Costs How are your decisions
measured in terms of opportunity costs?
Click the Speaker button to
listen to the Cover Story.
75
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information. Section 3 begins on page 19 of your textbook.
Introduction
• The process of making a choice is not
always easy. 
– Because resources are scarce, consumers
need to make wise choices. 
– To become a good decision maker, you need to
know how to identify the problem and then
analyze your alternatives. 
– Finally, you have to make your choice in a way
that carefully considers the costs and benefits
of each possibility.
76
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Trade-Offs and Opportunity Cost
• There are alternatives and costs to
everything we do. 
• In a world where “there is no such thing as
a free lunch,” it pays to examine these
concepts closely.
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Trade-Offs
• People face trade-offs, or alternative
choices, whenever they make an economic
decision. 
• To help make the decision, constructing a
grid is one way to approach the problem.
Figure 1.5
78
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Trade-Offs (cont.)
• Using a decision-making grid… 
– forces you to consider a number of relevant
alternatives. 
– requires you to identify the criteria used to
evaluate the alternatives. 
– forces you to evaluate each alternative based
on the criteria you selected.
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Opportunity Cost
• To an economist cost often means more
than the price tag placed on a good or
service. 
• Instead, economists think broadly in terms
of opportunity cost–the cost of the next
best alternative use of money, time, or
resources when one choice is made rather
than another. 
• Even time has an opportunity cost,
although you cannot always put a monetary
value on it.
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Production Possibilities
• A popular model economists use to
illustrate the concept of opportunity cost is
the production possibilities frontier. 
• This is a diagram representing various
combinations of goods and/or services an
economy can produce when all productive
resources are fully employed. 
• A classic example is a mythical country
called Alpha which produces two goods–
guns and butter.
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Identifying Possible Alternatives
• Even though Alpha only produces two
goods, the country has a number of
alternatives available to it. 
• This is why the
figure is called a
production
“possibilities”
frontier.
82
Figure 1.6
The Production Possibilities Frontier
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Identifying Possible Alternatives (cont.)
• Eventually though, Alpha will have to settle
on a single combination because its
resources are limited.
Figure 1.6
The Production Possibilities Frontier
83
Fully Employed Resources
• All points on the curve represent maximum
combinations of output possible if all
resources are fully employed. 
• As long as all
resources are
fully employed,
however, there
are no extra
resources
to produce extra
quantities of
guns or butter.
84
Figure 1.6
The Production Possibilities Frontier
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Fully Employed Resources (cont.)
• The figure is called a production
possibilities “frontier” to indicate the
maximum combinations of goods and/or
services that can be produced.
Figure 1.6
The Production Possibilities Frontier
85
Opportunity Cost
• Opportunity cost is a general concept that
is expressed in terms of trade-offs, or in
terms of things given up to get something
else. 
• Opportunity cost
is not always
measured in
terms of dollars
and cents.
86
Figure 1.6
The Production Possibilities Frontier
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The Cost of Idle Resources
• If some resources were not fully employed,
then it would be impossible for Alpha to
reach its potential. 
• If Alpha was
operating at
point E,
opportunity cost
of the
unemployed
resources would
be the 100 units
of lost butter
production.
87
Figure 1.6
The Production Possibilities Frontier
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The Cost of Idle Resources (cont.)
• Production at point E could be the result of
other idle resources, such as factories or
land that are available but are not being
used. 
• As long as some
resources are
idle, the country
cannot produce
on its frontier.
88
Figure 1.6
The Production Possibilities Frontier
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Economic Growth
• The production possibilities frontier
represents potential output at a given point
in time. 
• Eventually,
however,
population may
grow, the capital
stock may grow,
and productivity
may increase.
89
Figure 1.6
The Production Possibilities Frontier
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Economic Growth (cont.)
• If this happens, then Alpha will be able to
produce more in the future than it can
today. 
• Economic growth
Figure 1.6
causes the
The Production Possibilities Frontier
production
possibilities
frontier to move
outward.
90
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Thinking Like an Economist
• Economists study how people satisfy
seemingly unlimited and competing wants
with the careful use of scarce resources. 
• They are also concerned with strategies
that will help us make the best choices.
91
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Build Simple Models
• One of the most important strategies of
economists is the economic model. 
• A model is a simplified theory or a
simplified picture of what something is like
or how something works. 
• Simple models can often be constructed
that reduce complex situations to their most
basic elements. 
• It is important to remember that models are
based on assumptions, or things that we
take for granted as true.
92
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Build Simple Models (cont.)
• The quality of a model is no better than the
assumptions that it is based on. 
• Economists use models to better
understand the past or present and to
predict the future. 
• If an economic model results in a prediction
that turns out to be right, the model can be
used again. 
• If the prediction is wrong, the model might
be changed to make better predictions the
next time.
93
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Employ Cost-Benefit Analysis
• Most economic decisions can be made by
using cost-benefit analysis, a way of
thinking about a problem that compares the
costs of an action to the benefits received. 
• Businesses choose to invest in projects
which give the highest return per dollar
spent. 
• State and local governments also use costbenefit analysis to evaluate the
effectiveness of public programs.
94
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Take Small, Incremental Steps
• Finally, and whenever possible, it also
helps to make decisions by taking small,
incremental steps toward the final goal. 
• This is especially valuable whenever we
are unsure of the exact, or total, cost
involved. 
• If the cost turns out to be larger than we
anticipated, then the resulting decision can
be reversed, without too much being lost. 
• Few decisions are all-or-nothing decisions–
sometimes it helps to do a little bit at a time.
95
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The Road Ahead
• Economics includes the study of how things
are made, bought, sold, and used. 
• It provides insight as to how the economy
works on a daily basis. 
• It also provides a more detailed
understanding of a free enterprise
economy. 
• This is one in which consumers and
privately owned businesses, rather than
the government, make the majority of the
WHAT, HOW, and FOR WHOM decisions.
96
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Topics and Issues
• The study of economics will provide a
working knowledge of property rights,
competition, supply and demand, the price
system, and the economic incentives that
make the American economy function. 
• Along the way, topics such as
unemployment, the business cycle,
inflation, productivity, and economic growth
will be covered.
97
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Topics and Issues (cont.)
• The role of business, labor, and
government in the American economy
also will be examined, along with the
relationship of the United States economy
to the international community. 
• All of these have a bearing on our
standard of living–the quality of life based
on the possession of the necessities and
luxuries that make life easier.
98
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Economics for Citizenship
• The study of economics helps us to
become better decision makers–both in our
personal lives and in the voting booths. 
• The study of economics will not provide you
with clear-cut answers to all questions, of
course, but it will give you a better
understanding of the issues involved.
99
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Making the Rational Choice
• Economists study how decisions are
made. 
• Every time a choice is made something is
given up. 
• Rational choice is taking the things with
greater value and giving up those with
lesser value. 
• Society is dynamic and things are always
changing. 
• In practice, the world of economics is
complex and the road ahead is bumpy.
100
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Section Assessment
Main Idea Using your notes from the
graphic organizer activity on page 19,
explain what people try to achieve
when they make decisions or trade-offs.
When making economic decisions,
people try to get the most value for
their investment, whether it be time,
money, or something else.
101
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Section Assessment (cont.)
Describe the relationship between
trade-offs and opportunity costs.
All economic decisions involve tradeoffs. The opportunity cost of a choice
is the cost of the next best use of
money, time, or resources.
102
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Section Assessment (cont.)
List the decision-making strategies
that economists use.
Economists use the circular flow
diagram, production possibilities
frontier, and cost-benefit analysis.
103
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to display the answer.
Section Assessment (cont.)
Explain why the study of economics is
important to the American free
enterprise system.
Economic issues are an important
part of many political campaigns. An
understanding of the issues will help
a citizen decide how to vote in an
election.
104
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Section Assessment (cont.)
Opportunity Costs Identify several
possible uses of your time that will be
available to you after school today.
What will you actually do, and what will
be the opportunity cost of your
decision? Explain how your decision
will or will not affect your friends and
members of your family.
105
Section Assessment (cont.)
Making Generalizations Study the
decision-making grid on page 20 of
your textbook. Explain the advantages
of using such a grid to evaluate
alternatives.
Such a grid helps organize and
explain the various choices when
decision making.
106
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Section Close
How might the production
possibilities frontier change if new
technology were applied to the
production of guns but not to the
production of butter?
107
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Section 1: Scarcity and the Science
of Economics
• The basic economic problem of scarcity is due to
the combination of people’s seemingly unlimited
wants and relatively scarce resources. 
• In a world of scarce resources, There Is No Such
Thing As A Free Lunch (TINSTAAFL). 
• Because of scarcity, society has to decide WHAT,
HOW, and FOR WHOM to produce. 
• Land, capital, labor, and entrepreneurs are the
four factors of production required to produce
the things that people use.
109
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Section 1: Scarcity and the Science
of Economics (cont.)
• Entrepreneurs are risk-taking individuals who go
into business in order to make a profit; they
organize the other factors of production. 
• The scope of economics deals with description,
analysis, explanation, and prediction.
110
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Section 2: Basic Economic Concepts
• Consumers use goods and services to satisfy
their wants and needs. 
• Something has value when it has utility and is
relatively scarce. 
• Wealth consists of products that are scarce,
useful, and transferable to others, but wealth
does not include services, which are intangible.

• Markets link individuals and businesses in the
circular flow of economic activity; the factors of
production are traded in factor markets; goods
and services are traded in the product markets.
111
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Section 2: Basic Economic Concepts
(cont.)
• Productivity and investments in human capital
help economic growth; investments in human
capital are among the most profitable of all
investments. 
• Increases in specialization and division of labor
cause more economic interdependence.
112
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Section 3: Economic Choices and
Decision Making
• The opportunity cost of doing something is the
next best alternative, or trade-off, that you give
up. 
• A decision-making grid can be used to help
evaluate alternatives. 
• A production possibilities frontier shows the
various possible combinations of output that can
be produced when all resources are fully
employed; production inside the frontier occurs
when some resources are idle or are not being
used to their maximum capability.
113
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Section 3: Economic Choices and
Decision Making (cont.)
• When economic growth takes place, the
production possibilities frontier shifts outward,
showing that more products are produced than
before. 
• The economic way of thinking involves
simplification with model building, cost-benefit
analysis to evaluate alternatives, and incremental
decision making. 
• The study of economics will make you a better
decision maker and will help you to understand
the world around you; however, the study of
economics will not tell you which decisions to
make.
114
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Section 3: Economic Choices and
Decision Making (cont.)
• The study of economics helps people understand
how a free enterprise economy makes the
WHAT, HOW, and FOR WHOM decisions.
115
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Identifying Key Terms
Choose the letter of the term that best completes the following
sentences.
B Economic products designed to satisfy people’s
___
wants and needs are called _____ .
J The _____ of a CD player can be expressed in
___
dollars and cents.
I
___
Haircuts, repairs to home appliances, and
entertainment are examples of _____ .
A.
B.
C.
D.
E.
117
capital goods
consumer goods
consumers
factors of production
utility
F.
G.
H.
I.
J.
human capital
opportunity cost
scarcity
services
value
Click the mouse button or press the Space Bar to display the
answer. The Chapter Assessment is on pages 28–29.
Identifying Key Terms (cont.)
Choose the letter of the term that best completes the following
sentences.
H
___
_____ arises because society does not have
enough resources to produce all the things people
would like to have.
G The _____ of going to a football game instead of
___
working would include the money not earned at
your job.
F _____ is the sum of the skills, abilities, health, and
___
motivation of people.
A. capital goods
F. human capital
B. consumer goods
G. opportunity cost
C. consumers
H. scarcity
D. factors of production
I. services
E. utility
J. value
118
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to display the answer.
Identifying Key Terms (cont.)
Choose the letter of the term that best completes the following
sentences.
E _____ is another name for the capacity of a product
___
to be useful.
A The only factors of production that are themselves
___
the result of earlier production are _____ .
D Land, capital, labor, and entrepreneurs are _____ .
___
C People who use goods and services to satisfy their
___
wants and needs are called _____ .
A.
B.
C.
D.
E.
119
capital goods
consumer goods
consumers
factors of production
utility
F.
G.
H.
I.
J.
human capital
opportunity cost
scarcity
services
value
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to display the answer.
Reviewing the Facts
Identify the cause of scarcity.
having only limited resources to meet
seemingly unlimited wants
120
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Reviewing the Facts (cont.)
List the three basic economic
questions that every society must
face.
WHAT to produce? HOW to produce?
FOR WHOM to produce?
121
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Reviewing the Facts (cont.)
Describe the factors of production
required to deliver a service like
education.
land; land itself and natural resources;
capital: school building, computers,
financial capital; labor: teachers, other
workers, publishers; entrepreneurs:
people who devise new products and
methods of delivery of educational
material.
122
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Reviewing the Facts (cont.)
Explain why economics is
considered a social science.
It deals with people’s behavior as
they cope with scarcity.
123
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Reviewing the Facts (cont.)
Describe the relationship between
goods, services, and consumers.
Consumers use goods and services
to satisfy their wants and needs.
124
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Reviewing the Facts (cont.)
Explain why services are excluded
from the measure of wealth.
because they are intangible and it is
difficult to measure their value
accurately
125
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to display the answer.
Reviewing the Facts (cont.)
Distinguish between product
markets and factor markets.
Product markets are producers
offering goods and services for sale.
Factor markets are productive
resources being bought and sold.
126
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to display the answer.
Reviewing the Facts (cont.)
Explain why economists argue that
productivity is important.
Productivity is the efficient use of
productive resources. The more
efficiently productive resources are
used, the greater the number of
goods and services that are
produced.
127
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to display the answer.
Reviewing the Facts (cont.)
Describe the nature of an
opportunity cost.
the cost of the next best alternative
use of money, time, or resources
when one choice is made rather than
another
128
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Reviewing the Facts (cont.)
Identify the economic concept
illustrated by the production
possibilities frontier.
opportunity cost
129
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Reviewing the Facts (cont.)
Describe incremental decision
making.
making a decision in small stages or
steps so that the decision can be
reversed without too much being lost
130
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to display the answer.
Reviewing the Facts (cont.)
Explain why economic education is
important.
It helps people become better
decision makers.
131
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Thinking Critically
Understanding Cause and Effect Suppose
that Alpha, shown in Figure 1.6 on page 23,
decided to produce more guns and less
butter. What would Alpha have to do to
make the change? What would be the
opportunity cost of producing more guns?
What conditions would have to be met for
the new mix of guns and butter to be on the
production possibilities frontier?
Resources have to be shifted from guns to
butter. The opportunity cost of producing
more guns is the production of less butter. All
of Alpha’s resources would have to be
employed.
132
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to display the answer.
Thinking Critically (cont.)
Understanding Cause and Effect
Copy the two diagrams of the
production possibilities frontiers
shown shown on page 29 of your
textbook. Then, write captions that
explain what each diagram is
showing.
The diagram on the left shows
increase in productivity/resources in
gun industry; the diagram on the right
shows increase in resources/
productivity in butter industry.
133
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to display the answer.
Applying Economic Skills
Scarcity What three choices must a
society make because of scarcity?
WHAT to produce? HOW to produce?
FOR WHOM to produce?
134
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to display the answer.
Applying Economic Skills (cont.)
Utility How is a product’s utility
related to its value?
For a product to have value, it must
have utility.
135
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to display the answer.
Applying Economic Skills (cont.)
Cost-Benefit Analysis How would
you apply the concept of costbenefit analysis to the decision to
finish high school? To further your
education?
Make a matrix listing choices and the
costs and benefits (including time,
money, and satisfaction) of each
educational choice.
136
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to display the answer.
Suppose that scientists invented a car that
ran efficiently on water. Explain, in terms
of scarcity, how this might affect the price
of water. Explain, in terms of utility, how
this might affect the price of gasoline.
The more water that is needed, the scarcer it
becomes, and so the price of water might go
up. The less gasoline that is needed, the less
utility it has, and so the price of gasoline
might go down.
137
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to display the answer.
Click the mouse button to return to the Contents slide.
Continued on next slide.
Continued on next slide.
Continued on next slide.
Create a television-viewing log chronicling the
number and types of economics-related items
presented on the nightly news. Watch national
newscasts on the networks, CNN national
newscasts, and local newscasts. Record the
date, the subject of the item, and the length of
time devoted to the item.
Explore online information about the
topics introduced in this chapter.
Click on the Connect button to launch your browser and go to the
Economics: Principles and Practices Web site. At this site, you
will find interactive activities, current events information, and Web
sites correlated with the chapters and units in the textbook.
When you finish exploring, exit the browser program to return to
this presentation. If you experience difficulty connecting to the
Web site, manually launch your Web browser and go to
http://epp.glencoe.com
Explore online information about the
topics introduced in this chapter.
Click on the Connect button to launch your browser and go to the
BusinessWeek Web site. At this site, you will find up-to-date
information dealing with all aspects of economics. When you
finish exploring, exit the browser program to return to this
presentation. If you experience difficulty connecting to the Web
site, manually launch your Web browser and go to
http://www.businessweek.com
Durable Goods Orders The Department of
Commerce’s report on durable goods orders highlights
the number of new orders placed with domestic
manufacturers for good intended to last over three
years. The report is divided into broad categories; these
include defense, nondefense, and capital and
noncapital goods. Noncapital goods are generally of the
consumer spending variety and include automobiles
and large appliances. Capital goods tend to be of the
investment spending nature, while defense goods
indicate government spending.
United States Leads in Entrepreneurs Just as students
in the United States participate in programs on
entrepreneurship, students in other countries study the
same principles. In Ireland, students aged 12 to 18 can
be part of the Young Entrepreneurs Programme. The
purpose of the program is to encourage students to learn
about starting their own businesses. Students sometimes
sell their products or services to other students and
sometimes to the general public. During the 1996–1997
school year, more than 7,000 students in 250 schools
took part in the program, starting about 2,300
businesses.
Wealth in Other Cultures Personal wealth has
been viewed in a variety of different ways in
cultures around the world. In the past, the
camel, an animal indispensable for journeys
across desert regions, was a highly prized
possession in many Arab countries. Wealth and
social standing were measured, in part, by the
number of camels a person owned.
The term conspicuous consumption–which
means the use of a good or service to
impress others–was coined by economist
and social critic Thorstein Veblen in his study
The Theory of the Leisure Class (1899).
Stock Trading One area of economic activity that
computers and the Internet have revolutionized is
stock trading. For certain stocks, traders no
longer have to use a stockbroker to buy or sell
stock. Instead, using computers, they can trade
directly with one another. They also use certain
software programs to help them analyze stocks.
Using a number of sites on the Internet, traders
can keep track of stocks as they are being bought
and sold, and keep track of the buyers and
sellers as well.
The Role of the
Entrepreneur
Alexis de Tocqueville, a French traveler, wrote
about his travels in the United States during the
1830s. His book, Democracy in America, is a
two-volume study of the American people and
their institutions.
Read the BusinessWeek Newsclip article on
page 11 of your textbook. Learn why Democracy
in America is still relevant today.
Continued on next slide.
This feature is found on page 11 of your textbook. Click
the Speaker button to listen to an audio introduction.
The Role of the
Entrepreneur
Summarizing Information What are
the entrepreneurial qualities of small
companies?
They are nimble, innovative, close to the
customer, and quick to the market.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 11 of your textbook.
The Role of the
Entrepreneur
Finding the Main Idea What does the
writer mean by “diseconomies of
scale”?
The writer is referring to the slowness to
change and the high costs that can result
when companies become too large.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 11 of your textbook.
What Is Economics?
Your Role As A Consumer
Click on a hyperlink to choose that topic.
Economics and You
Video 2: What Is Economics?
After viewing What Is Economics?, you should
be able to: 
• Define economics. 
• Give an example of economic scarcity. 
• Distinguish between needs and wants. 
• Discuss the trade-offs involved in allocating
scarce resources.
Continued on next slide.
Click the mouse button or press the Space Bar
to display the information.
Economics and You
Video 2: What Is Economics?
Side 1
Disc 1
Chapter 2
Click the Videodisc button
anytime throughout this
section to play the complete
video if you have a videodisc
player attached to your
computer.
Click inside this box to play the preview.
Click the Forward button to
view the discussion questions
and other related slides.
Continued on next slide.
Economics and You
Video 2: What Is Economics?
What is economic scarcity?
Economic scarcity occurs when
available resources are not
sufficiently abundant to satisfy the
total demand for them.
Side 1
Disc 1
Chapter 2
Click the mouse button or press the Space Bar to display the
answer.
Economics and You
Video 9: Your Role As A
Consumer
After viewing Your Role As A Consumer, you
should be able to: 
• Compare and contrast disposable and
discretionary income. 
• Identify aspects of wise consumer decision
making. 
• Describe some federal consumer protection
activities.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
information.
Economics and You
Video 9: Your Role As A
Consumer
Side 1
Disc 1
Chapter 9
Click the Videodisc button
anytime throughout this
section to play the complete
video if you have a videodisc
player attached to your
computer.
Click inside this box to play the preview.
Click the Forward button to
view the discussion questions
and other related slides.
Continued on next slide.
Economics and You
Video 9: Your Role As A
Consumer
What is the difference between
disposable income and discretionary
income?
Disposable income is the money
left after taxes that is spent on
basics. Discretionary income is
the money left over for
nonessentials.
Click the mouse button or press the Space Bar to display the
answer.
Side 1
Disc 1
Chapter 9
Sequencing and
Categorizing Information
Sequencing involves placing facts in the
order in which they occur. Categorizing
entails organizing information into groups of
related facts and ideas. Both actions help you
deal with large quantities of information in an
understandable way.
Continued on next slide.
This feature is found on page 26 of your textbook.
Sequencing and
Categorizing Information
Learning the Skill
• Look for dates or clue words that provide you with a
chronological order: in 2004, the late 1990s, first,
then, finally, and so on. 
• If the information does not happen in sequence,
you may categorize it instead. To do so, look for
information with similar characteristics. 
• List these characteristics, or categories, as the
headings on a chart.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
information. This feature is found on page 26 of your textbook.
Sequencing and
Categorizing Information
Learning the Skill (cont.)
• As you read, fill in details under the proper category
on the chart.
Continued on next slide.
This feature is found on page 26 of your textbook.
Sequencing and
Categorizing Information
Practicing the Skill
• Read the excerpts on page 26 of your textbook,
compare the information they contain, then answer
the questions on the following slides.
Continued on next slide.
This feature is found on page 26 of your textbook.
Sequencing and
Categorizing Information
Which passage’s information can be
organized sequentially? List the main ideas
in chronological order.
Excerpt A; the U.S. dominated the world steel
market (1950s, 1960s), foreign competition cut
into U.S. dominance (1980s), U.S. steel
production improved (1990), work-hours
required to produce a ton of steel dropped in
the U.S. (1990), beginning in 1947 trade
agreements protected U.S. jobs. Continued on next slide.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 26 of your textbook.
Sequencing and
Categorizing Information
What categories can you use to
organize the information in the other
excerpt?
Answers will vary.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 26 of your textbook.
Adam Smith
1723–1790
Click the picture to learn
more about Adam Smith.
Be prepared to answer the
questions that appear on
the next two slides.
Continued on next slide.
This feature is found on page 18 of your textbook.
Adam Smith
1723–1790
Summarizing Ideas Summarize Smith’s
contribution to economic thought.
Answers will vary.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 18 of your textbook.
Adam Smith
1723–1790
Synthesizing Information Explain how
Smith’s ideas are evident in the
workings of the American economy.
The United States has a market economy,
composed of a myriad of small markets,
each of which operates essentially in the
way Smith described; buyers and sellers
operate in their own best interests.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 18 of your textbook.
End of Custom Shows
WARNING! Do Not Remove
This slide is intentionally blank and is set to auto-advance to end custom
shows and return to the main presentation.
Click the mouse button to return to the Contents slide.