Essential Questions: How do economists study the ways
people make decisions on how to use their time, money,
and resources? What level of control should
government have over the decisions people make?
Since resources are scarce, what is this best way to
distribute these resources?
 Economics
– the study of decision making
concerning the production, distribution, and
consumption of goods and services
 The fundamental issue of economics is
scarcity.
 Scarcity – when we don’t have enough of a
resource to produce all of the things we would
like to have, or all of the things that we need
(limited resources)
Needs – things we
HAVE to have to
survive
 Example: Food,
clothing, shelter
• Wants – things we
would like to have
 Example:
Entertainment,
vacations, luxury
items

 Goods
– tangible products available to
consumers
 Services – intangible products available to
consumers
 Consumer – a buyer of a good or service
 Producer – someone who produces a good or
service
 Because
of scarcity, we have to make
economic choices based on our limited
resources.
 The Decision Making Model: When we make
economic choices, we should use a five step
process:
1. Define the problem
2. List the alternatives (choices)
3. State the reasons why you would choose one
alternative over another
4. Evaluate the alternatives
5. Make a decision
Any time we make a decision, we are ultimately
choosing between at least two or more options.
 When we make a choice, we are faced with a
“trade off” – when a person chooses between their
options
 The second best option, that we “cannot” choose
is known as the opportunity cost – what we give
up when we choose our best option.
 Example: Should I go to work today or take off
and rest?


The opportunity cost of going to work today is the rest
I could have had by choosing to not work. The trade
off is choosing between the two options.

In order to produce any good or service, there are four
important “ingredients”. These ingredients are known
as the Four Factors of Production.
1.
2.
3.
4.
Capital – also known as capital goods; tools, machinery,
and buildings used to make other products
Entrepreneurship – individuals who start new
businesses or introduce new products
Labor – Nation’s labor force (human resources); both
physical and mental efforts used to produce
goods/services
Land – “Gifts of Nature” – fields, rainfall, forests,
mineral deposits, and other resources we use to make
products
Renewable Resources – once we use it, we can get more
Nonrenewable Resources – once we use it, we can’t get
more
WHAT? – What
should a society
produce?
 HOW? – How should
a society produce
goods/services? How
much of a
good/service should
be produced?
 WHO? – Who should
have the opportunity
to buy the
goods/services?
