Chapter 1 What is Economics?
Section 1: Scarcity & the Factors
of Production
Scarcity & Choice
 People
cannot have everything they
need & want
 Need- necessary for survival
 Want- Not essential
 Must consider their options & decide
which choice will fill their needs best
Ex:
You must choose how to
spend your time
Businesses must choose how
many people to hire
 Economics- study of how people seek
to satisfy their needs & wants by
making choices
Scarcity

Defining scarcity
 Implies limited quantities of resources
to meet unlimited wants
 No one can have an endless supply of
everything
 Sooner or later a limit is always
reached
 Economics is about solving the
problem of scarcity
Scarcity v. Shortages
 Shortages
occur when producers will
not or cannot offer goods & services
at the current prices
 Can be short or long term
 Caused by wars or droughts
 Scarcity
always exists because our
needs & wants are always greater
than our resource supply
 Goods & services are scarce
because they are all made from
resources that are scarce
The Factors of Production
 All
of the resources used to make
goods & services
 Land- all natural resources used to
produce goods & services
Natural resources- fertile land for
farming & products that are found
in or on the land (coal, water,
trees, etc.)
 Labor-
effort a person devotes to a
task for which that person is paid
 Capital- any human made resource
that is used to produce other goods &
service
 Physical
capital- human made objects
used to create other goods & services
Can save people & companies a
great deal of time & money
Ex: Buildings & tools
Buildings help workers do their
work by providing protection &
space
Tools help workers produce a
good or service
 Benefits
 Ex:
Doing the dishes v. using a
dishwasher
 Extra time
 More knowledge
 More productivity
 Human
capital- knowledge & skills
a worker gains through education
& experience
The factors of popcorn production
Land
Labor
Capital
Popping Corn
The human effort needed
to pop the corn
Corn-Popping
Device
Vegetable Oil
Entrepreneurs
 Leaders
who decide how to combine
land, labor, & capital resources to
create new goods & services
 Take risks to develop original ideas,
start businesses, create new
industries, & fuel economic growth
Scarce resources
 Supplies
of land, labor, & capital
used to produce it are scarce &
that each resource has many
alternative uses