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Economics Ch 1 Outline

Economics Chapter 1
What is it and how does it affect me?
Why study economics?
Because you can’t have everything you want!
Problem of SCARCITY*
*Definition: The condition that occurs because society does not have the resources to
produce all the items people would like to possess.
To become better, informed decision makers.
Divisions of economics
Study of choices made by individual economic actors.
Study of the behavior and choices of entire economies.
A study of man’s efforts to satisfy unlimited and competing wants using limited resources.
A study of what is produced, and who gets how much.
The Study of Choices
3 Basic Questions
•What to produce?
•How to produce?
•For whom to produce?
Who decides?
•Consumers – those buying or obtaining the resources
•Producers – those who make things to satisfy needs and wants
Deciding on what?
•Resources – anything that people use to make or obtain what they need or want
•Goods – objects that can be purchased
•Services – actions or activities performed for a fee
Factors of Production
Land-natural resources
* Capital goods-tools, equipment, and factories used to produce goods and services.
* Financial capital- money used to buy the tools and equipment used in production
Labor-people using their efforts, abilities and skills.
Entrepreneurs- a risk-taker in search of profit.
Economic Concepts
–A basic requirement for survival. (food, clothing, shelter)
–A personal desire beyond a basic need.
–Means of expressing a need.
Goods – objects that can be purchased.
Consumer goods – objects intended for individual use.
Capital goods – a manufactured good used to produce other goods and services.
Durable goods – items that last for three or more years under constant use.
Nondurable goods - items that last less than three years.
Services – actions performed for someone else.
Consumers – those who use goods and services.
What makes items important?
Utility – useful to someone.
Production – creating goods and services.
Productivity – efficient use of resources.
What increases Productivity?
Specialization – people specializing in their best skill.
Human capital – Sum of skills, abilities, health and motivation of people.
Exchange- when consumers and producers agree to provide one type of item in return for another.
–Barter- relies on bargaining. A direct trade of goods
–Credit – allows consumers to use items before completing payment for the item.
–Money- any item that is readily accepted by people in return for goods and services
Making Choices
–Choices between alternatives.
Weighing the advantages. against the disadvantages.
Sacrificing one item for another.
Opportunity Costs
The cost of the next best alternative in terms of money, time, or other resources.
What is costs you to make one choice over another.
Production Possibilities
All the combinations of goods and services that can be produced from a fixed amount of
resources in a given period of time.
Production Possibilities
Two assumptions.
The amount of available technology and resources will not change during the period of
time being studied.
All the resources, natural, human, and capital, are being used in the most efficient manner
Production Possibilities Curve
Points inside the curve represent an inefficient use of resources.
Points outside the curve represent a production impossibility.
The Circular Flow of Money
Resource Market
Product Market