Presentation Plus! Economics: Today and Tomorrow
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CHAPTER FOCUS
SECTION 1 The Basic Problem in
Economics
SECTION 2 Trade-Offs
SECTION 3 What Do Economists Do?
CHAPTER SUMMARY
CHAPTER ASSESSMENT
3
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Why It’s Important
How do scarce resources–including time–
affect you and everyone around you?
How do economists simplify the world to
help us better understand it? This chapter
will explain what economics is and how it
is part of your daily life.
Click the Speaker button to
listen to Why It’s Important.
4
Chapter Overview
Economics is the study of how individuals
and nations make choices about how to
fulfill their wants. Chapter 1 explains
scarcity, the four factors of production, the
relationship between trade-offs and
opportunity costs, and how economists
use economic data to test the economic
models.
5
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Reader’s Guide
Section Overview
Section 1 explains or describes the importance of
economics, the relationship of scarcity to unlimited
wants, and the four factors of production. 
Objectives
– How do wants and needs differ? 
– Why does scarcity face all people at all times? 
– What are the four factors of production?
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information. Section 1 begins on page 3 of your textbook.
Reader’s Guide (cont.)
Terms to Know
– economics 
– entrepreneurship 
– scarcity 
– technology
– factors of production 
– land

– labor 
– goods 
– services 
– capital 
– productivity 
Click the Speaker button to
listen to the Cover Story.
8
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information. Section 1 begins on page 3 of your textbook.
Introduction
• Economics is the study of how
individuals, families, businesses, and
societies use limited resources to fulfill
their unlimited wants.
economics
the study of how individuals
and societies make choices
about ways to use scarce
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resources to fulfill their
wants
Lecture Launcher
• In 1901, people discovered oil in Texas—
but they were actually looking for water!
Disappointed, they offered to trade the oil
for water at a ratio of 1:1 (one barrel of
oil for each barrel of water). 
• Which is a more primary need, oil or
water? 
• What is the difference between a need
an a want?
10
Wants Versus Needs
• People use “need” and “want”
interchangeably. 
• Wants are anything other than what is
needed for basic survival. 
• Needs are things required for basic survival
(food, clothing, shelter).
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Discussion Question
How can you determine whether or
not something is truly a need? How
can needs be confused with wants?
Needs are few and basic: food,
clothing, and shelter. Designer
jeans and expensive shoes are
not needs. Students should
consider what might happen if
the need/want is not met.
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to display the answer.
Choices
• Spending decisions involve choices. 
• Each available choice competes with other
available choices. 
• Businesses, like individuals, must make
daily decisions about what to produce,
when to produce it, and when to stop
producing. 
• Societies face choices about how to utilize
their resources in the production of goods
and services.
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Discussion Question
What are some of the choices
competing for your income?
Answers will vary. Students may
list lunches,
movies/entertainment,
extracurricular activities, car
insurance, etc.
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The Problem of Scarcity
• All resources are limited. 
• People compete for limited resources. 
• Scarcity exists because people cannot
satisfy their every want. 
• Unlike scarcity, shortages are temporary.
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Discussion Question
What is your most scarce resource?
What competing uses do you have
for that resource?
Students may refer to the
resources of time, money,
knowledge, or life experience.
They should clearly understand
how the uses of that resource
compete with one another.
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Factors of Production
• Land—natural resources and their
location 
• Labor—the work people do 
• Capital—manufactured goods used to
make other goods and services 
• Entrepreneurship—the ability to start a
new business or create new products 
• Technology— the use of science to
develop new products and production
methods
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Discussion Question
All of the factors of production are
important and impact each other.
Which factor seems most important
to you and why?
Answers will vary. As the
discussion develops, students
should show dissatisfaction with
the idea of selecting one factor
over another since they are
inseparable for efficient
production.
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Section Assessment
What is the difference between
wants and needs?
Needs are basic to survival.
Wants are things other than
these basic needs.
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Section Assessment
Explain why scarcity and choice are
basic problems of economics.
Scarcity: there are not enough
resources to satisfy everyone’s
wants; Choice: everything that
exists is limited.
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to display the answer.
Section Assessment
Summarizing Information Use a
search engine to help you research
an entrepreneur. Explain what
benefits were brought to science by
his or her risk-taking
entrepreneurship.
Answers will vary.
21
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Section Close
Write a paragraph using the
following as a topic sentence:
Everyone makes economic choices.
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Reader’s Guide
Section Overview
Section 2 explains how the concept of trade-offs is
related to opportunity costs and the production
possibilities curve. 
Objectives
– How are trade-offs and opportunity costs
related? 
– How can society’s trade-offs be shown on a
production possibilities curve?
24
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information. Section 2 begins on page 12 of your textbook.
Reader’s Guide (cont.)
Terms to Know
– trade-off 
– opportunity cost 
– production possibilities curve
Click the Speaker button to
listen to the Cover Story.
25
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information. Section 2 begins on page 12 of your textbook.
Introduction
• Scarcity forces people to make choices
about how they will use their resources. 
• The effects of these choices may be
long-lasting.
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Lecture Launcher
• During the 1600s, the demand for
Holland’s tulips became so great that
prices rose to unbelievable levels. In
fact, around 1610, a single tulip bulb
could be given as the dowry for a bride. 
• What do you think the groom might have
had to give up in order to offer a tulip bulb
in 1610? 
• What do you think the trade-off would be
today?
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Trade-Offs
• Exchanging one thing for the use of
another is called a trade-off. 
• Trade-offs involve opportunity costs, or
the loss of one alternative when you
choose another. 
• Considering the opportunity cost can help
people make decisions.
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Discussion Question
Consider all the costs of choosing
to play a particular fall sport. Name
all the costs and explain whether or
not you would still choose to play.
Answers will vary. Students
should consider the amount of
time and money the sport will
cost them. They should also
consider their next best
alternative, or opportunity cost,
as they make their decision.
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Production Possibilities Curve
• The production possibilities curve shows
the maximum combination of goods and
services that can be produced from a
given amount of resources. 
Figure 1.6
• Classic
Production Possibilities for Jewelry
Example
—military
spending
vs.
domestic
programs
(“guns or
butter”)
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Production Possibilities Curve
• Using a production possibilities curve, a
producer can decide how to use
Figure 1.7
resources.
Production Possibilities–
Military Goods Versus Civilian Goods
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Discussion Question
What is the best balance between
military spending and domestic
programs? What kind of situations
might arise that would cause you to
change your answer?
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Discussion Question
Answers will vary. Many
students will begin with the belief
that a strong military is
imperative; others will argue for
domestic programs. Historically,
war, military threat, or an
economic disaster (like the
depression) has caused the
United States to shift its
resources along the “guns or
butter” production possibility
curve.
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Section Assessment
How are trade-offs and opportunity
costs related?
Every trade-off involves an
opportunity cost.
34
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Section Assessment (cont.)
Synthesizing Information Build
your own production possibilities
curve with “Hours Spent Watching
TV” on the horizontal axis and
“Hours Spent Studying Economics”
on the vertical axis. Write a caption
explaining the opportunity cost of
each activity.
Answers will vary.
35
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Section Close
Discuss how using a production
possibilities curve enables a
business to use its resources in an
economically efficient manner.
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Reader’s Guide
Section Overview
Section 3 describes and explains the use of
economic models by economists. 
Objectives
– How do economists use models to study the
real world? 
– Why are there different schools of economic
thought?
38
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information. Section 3 begins on page 18 of your textbook.
Reader’s Guide (cont.)
Terms to Know
– microeconomics 
– macroeconomics 
– economy 
– economic model 
– hypothesis
Click the Speaker button to
listen to the Cover Story.
39
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information. Section 3 begins on page 18 of your textbook.
Introduction
• Economics is a social science concerned
with the ways individuals and nations
choose to use their scarce resources. 
• Economists might analyze how the superrich spend their income, for example, and
the effect this spending has on the
economy. 
• However, they do not judge whether there
should be a social strata of the super-rich.
40
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Introduction (cont.)
• Economics is divided into two parts. 
– microeconomics

– macroeconomics
microeconomics
the branch of economic
theory that deals with
behavior and decision
making by small units such
as individuals and firms
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macroeconomics
the branch of economic
theory dealing with the
economy as a whole and
decision making by large
units such as governments
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Lecture Launcher
• Even scientific models that have been
accepted for centuries can be
discredited. For example, for over 1,500
years, people accepted Ptolemy’s model
of the universe, in which the sun and all
the other planets revolved around the
earth. 
• What planetary model took its place?

• Would it have been possible to discredit
the Ptolemy model without offering an
alternative model to replace it?
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Economic Models
• Economic models are theories
economists use that are simplified
representations of the real world. 
• Models show how people behave
economically. 
• When using a model, show basic factors,
not every detail.
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Economic Models (cont.)
• When creating a model, show basic
factors, not every detail. 
• Testing models verifies how accurately the
models represent reality under certain
conditions.
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Economic Models (cont.)
• Models may not always be accurate due
to the inability to predict human behavior.
Figure 1.10
Economic Models
Graph A is an example of a model, and Graph B is a test of that
model.
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Discussion Question
Suppose you want to explore
correlations between peace, war,
and inflation. 
How would you create, test, and
apply the model?
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Discussion Question
Sample response: Collect inflation
data on various countries and look
for correlations during peace time
and war. Create a model that best
describes the relationship you
found between war, peace, and
inflation. Collect additional inflation
data to further test your model.
Apply you model by predicting how
peace and war will affect a nation’s
rate of inflation in the future.
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Schools of Economic Thought
• Economists are influenced by personal
opinions beliefs, and the government
under which they live. 
• This leads to different economic
theories. 
• Different schools of thought can have an
impact on laws and government policies.
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Schools of Economic Thought (cont.)
• Judgements about economic policies
depend on a person’s values. 
• Values are beliefs or characteristics that
a person or group considers important. 
• The science of economics is not used to
judge whether a certain policy is good or
bad.
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Discussion Question
How can a state’s policies promote strong
economic growth? Sometimes states
have to consider contradictory evidence.
The Cato Institute released a report that
showed that higher income taxes deterred
economic growth. Another organization
disputed the study by showing that the
ten states with the highest income tax
burden (3.5% compared to the 50-state
average of 2.2%) had higher than average
economic growth (1.9% compared to the
50-state average of 1.6%). 
What values might lead a state to cite one
of these studies and ignore the other.
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Discussion Question
A state which values a high level of
governmental service an more
equitable distribution of income may
be more convinced by the higher
taxes, greater growth study. A state
that values personal freedom may
find the research showing higher
taxes to be detrimental more
convincing.
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Section Assessment
Why are there different schools of
economic thought?
Economist’s personal opinions and
beliefs may influence how they view
facts and fit them to theories. The
government under which economists
live also shapes how they view the
world.
52
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Section Assessment
Distinguishing Fact From Opinion
Write three “headlines” about the
economy that reveal a value
judgment. Then rewrite the
headlines to omit the value
judgment.
Answers will vary.
53
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Section Close
As a class, discuss the following
question: How can an
understanding of basic economic
principles help people become more
effective citizens?
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Section 1: The Basic Problem in
Economics
• Economics is the study of how individuals,
families, businesses, and societies use limited
resources to fulfill their unlimited wants. 
• Individuals satisfy their unlimited wants in a
world of limited resources by making
choices. 
• The need to make choices arises because of
scarcity, the basic problem of economics. 
• The resources needed to make goods and
services are known as the factors of
production.
56
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Section 1: The Basic Problem in
Economics (cont.)
• The four factors of production include land, or
natural resources; labor, also known as
human resources; capital, the manufactured
goods used to make other goods and
services; and entrepreneurship, the ability of
risk-taking individuals to start new businesses
and introduce new products and processes. 
• Some economists add technology to the list of
factors of production.
57
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Section 2: Trade-Offs
• People are forced to make trade-offs every
time they use their resources in one way and
not another. 
• The cost of making a trade-off is known as
opportunity cost–the value of the next best
alternative that had to be given up to do the
action that was chosen. 
• A production possibilities curve is a graph
that shows the maximum combinations of
goods and services that can be produced
from a fixed amount of resources in a given
period of time.
58
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Section 2: Trade-Offs (cont.)
• The classic example for explaining production
possibilities in economics is the trade-off
between guns (military defense) and butter
(civilian goods).
59
Section 3: What Do Economists Do?
• Economists study the economy–all the
activity in a nation that together affects the
production, distribution, and use of goods and
services. 
• Economists also formulate theories called
economic models, which are simplified
representations of the real world. 
• Economists test their models in the same way
that other scientists test hypotheses, or
educated guesses.
60
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Section 3: What Do Economists Do?
(cont.)
• Economists deal with facts, although their
personal opinions may sway their theories. 
• Economists offer solutions to economic
problems, but they do not put value judgments
on those solutions.
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Recalling Facts and Ideas
What is the condition that results
because wants are unlimited?
scarcity
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Recalling Facts and Ideas (cont.)
What is the difference between
scarcity and shortages?
Scarcity refers to the fixed, or set,
amount of resources available to fulfill
unlimited wants. Shortages refer to
situations where items are temporarily
in short supply.
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Recalling Facts and Ideas (cont.)
Your friend says, “I need some new
clothes.” Under what conditions
would this be expressing a need?
A want?
It would be a need if the clothes were
an absolute necessity; it would be a
want if a simple desire for more
clothes was being expressed.
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Recalling Facts and Ideas (cont.)
What are the four factors of
production?
land, labor, capital, entrepreneurship
66
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Recalling Facts and Ideas (cont.)
What does making a trade-off
require you to do?
It requires you to exchange one thing
for the use of another.
67
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Recalling Facts and Ideas (cont.)
What do economists call the next
best alternative that had to be given
up for the one chosen?
opportunity cost
68
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Recalling Facts and Ideas (cont.)
In economics, what is cost?
a foregone opportunity
69
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Recalling Facts and Ideas (cont.)
What does a production possibilities
curve show?
A graph showing the combination of
goods and services that can be
produced with a fixed amount of
resources in a given period of time
70
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Recalling Facts and Ideas (cont.)
For what purposes do economists
use real-world data in building
models?
as the basis for testing theories that
explain an event or offer a solution to
a problem
71
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Recalling Facts and Ideas (cont.)
An economic theory is another name
for what?
an economic model
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Recalling Facts and Ideas (cont.)
When does an economist consider
an economic model useful?
if it provides useful material for
analyzing the way the real world
works
73
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Thinking Critically
Drawing Inferences and Conclusions
Some people argue that air is not an
economic good. Explain why you agree
or disagree with this statement.
Possible answers: Some may agree,
pointing out that people do not have to
give up anything of value to breathe the
air. Others might disagree, noting that
because of pollution, an economic cost is
paid to clean up the air and to cover the
medical expenses of those made sick by
the pollution.
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Thinking Critically (cont.)
Categorizing Information Create
three diagrams like the one on page
26 of your textbook and label the
center oval with one of the following
services: providing financial advice,
teaching economics, producing a
movie. Fill in examples of each
factor of production that went into
developing these services.
75
Reviewing Skills
Sequencing and Categorizing Information 
• In this chapter you learned that some
economists add technology as a fifth factor of
production. 
• Technology is an advance in knowledge
leading to new and improved goods and
services and better ways of producing them. 
• This includes any use of land, labor, capital,
and entrepreneurship that produces goods and
services more efficiently.
76
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Reviewing Skills (cont.)
• Choose a product or service and then
research the technology that went into
developing it. 
• Construct a diagram, like the one on page
27 of your textbook, that displays in
sequential order the technology involved in
preparing the factors of production that
ultimately create your good or service. 
• Share your diagram with the rest of the
class.
77
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When is an automobile considered a
capital good?
when it is used to produce a service,
such as pizza delivery
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Click the mouse button to return to the Contents slide.
Imagine that you have $100 to spend. Make a list of
the items you would like to buy and the approximate
price of each item. Add up the prices and, if the
total exceeds $100, remove items so that you do
not exceed your budget.
What choices did you make, and why did
you make them?
Click the mouse button to return to the Contents slide.
Explore online information about the
topics introduced in this chapter.
Click on the Connect button to launch your browser and go to the
Economics: Today and Tomorrow 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://glencoe.com/sec/socialstudies/economics/econtoday2005
/index.php/
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
Technology
Literature
Click a hyperlink to go to the corresponding topic.
Technology
“Smart Labels” may one day replace the bar codes
that you see on items you buy at the store. These
labels contain a computer chip, which can carry a
wealth of information. And new data can be added
even after the label has been attached to the
package. Also, because the chip communicates by
radio waves, the label does not have to be held
directly in front of a scanner to be read. The radio
waves can even penetrate dirt or other grime that
might cover the label. The one disadvantage to this
new technology is cost–about 30¢ per label.
Literature
American author John Steinbeck, who wrote Grapes of
Wrath—the classic study of life in the United States
during the Great Depression—used as many as 60
pencils a day.
Coasters Find a Whole
New Way to Roll
Medusa was new roller coaster introduced by the Six
Flags group in 1999. It was the world’s first “heartline”
roller coaster. In a heartline, the riders feel as if there is
nothing above or below them. On Medusa, passenger’s
feet dangle without touching anything below. The tilt of
the seat gives riders the impression that they are
completely open to the sky above.
Read the BusinessWeek Spotlight on the Economy
article on page 17 of your textbook. Learn how traditional
roller coasters are being modernized, keeping in mind the
factors of production needed to perform this
Continued on next slide.
modernization.
This feature is found on page 17 of your textbook.
Coasters Find a Whole
New Way to Roll
Provide two examples of each factor of
production that went into developing the new
coasters.
Land–raw materials to make steel for rails and waiting
platform; Labor–workers who manufactured new
motors and constructed the new roller coaster;
Capital–electricity that produces electromagnetic
force, computer and robots that built linear induction
motor; Entrepreneurship–Premier Rides of Maryland
developed new technology, Six Flags America
introduced new ride to the public.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 17 of your textbook.
Coasters Find a Whole
New Way to Roll
What is the opportunity cost of
spending a day at an amusement
park?
the next best alternative given up to go to the
amusement park
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answer. This feature is found on page 17 of your textbook.
Continued on next slide.
Continued on next slide.
Continued on next slide.
Economics and You
Video 2: What is Economics?
After viewing What is Economics?, you should
be able to… 
• define economics. 
• give an example of economics scarcity. 
• distinguish between needs and wants. 
• discuss the trade-offs involved in allocating
scarce resources.
Continued on next slide.
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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 the Forward button to
view the discussion questions
and other related slides.
Click inside the box to play the preview.
Continued on next slide.
Economics and You
Video 2: What is Economics?
If an item that everyone needs is
scarce, how can it be allocated?
through rationing programs
Side 1
Disc 1
Chapter 2
Click the mouse button or press the Space Bar
to display the answer.
Sequencing and
Categorizing Information
Sequencing involves placing facts in the
order in which they occurred. 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 9 of your textbook.
Sequencing and
Categorizing Information
Learning the Skill
• To learn sequencing and categorizing skills, follow the
steps listed below. 
– Look for dates or clue words that provide you
with a chronological order: in 2004, the late
1990s, first, then, finally, after the Great
Depression, and so on.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
information. This feature is found on page 9 of your textbook.
Sequencing and
Categorizing Information
Learning the Skill (cont.)
– If the information you’re studying did not happen in
a sequential order, 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. 
– As you read, fill in details under the proper
category on the chart.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
information. This feature is found on page 9 of your textbook.
Sequencing and
Categorizing Information
Practicing the Skill
• Read the passage on page 9 of your textbook, then
answer the questions that follow.
Continued on next slide.
This feature is found on page 9 of your textbook.
Sequencing and
Categorizing Information
How can the facts here be organized
sequentially?
1. Twinkies invented in 1930.
2. Dewar thought it wasteful to use expensive
shortcake pans for only 6 weeks during the
strawberry season.
3. Decided to utilize cake pans for another type
of cake.
4. Dewar developed a banana filling and worked
out a way to inject it into the cakes.
Continued on next slide.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 9 of your textbook.
Sequencing and
Categorizing Information
Now organize the facts under the
categories of Land, Labor, Capital, and
Entrepreneurship.
Land–strawberries, bananas; Labor–plant,
manager; Capital–bakery, expensive cake pans,
syringe-like injection tubes; Entrepreneurship–
Dewar’s decision to find a way to use the
expensive cake tins all year round; the switch
from strawberry filling to banana filling
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 9 of your textbook.
Pencils–An International
Product
As you’ve learned, the “land” factor of
production includes natural resources. The
natural resources that make up a pencil come
from all over the world. So a pencil–yes, the
simple writing tool you hold in your hand–is
an international product.
Continued on next slide.
The area of economics that uses mathematical
models to analyze, interpret, and predict
economic behavior is known as econometrics.
Economists Ragnar Frisch of Norway and Jan
Tinbergen of Holland developed this approach
in the 1930s. They won the 1969 Nobel Prize in
economics for their groundbreaking work.
Factors of Production
Economic development in developing countries,
as in developed countries, is linked to the
factors of production. Many economists believe
that the biggest obstacle to economic growth in
developing countries is the quality of labor. With
low literacy rates and poor health conditions,
labor forces in developing countries do not have
the skills needed to keep up with modern
technology.
Robert L. Heilbroner
1919–
Click the picture to listen to
the biographical overview
about Robert L. Heilbroner
on page 24 of your
textbook . Be prepared to
answer questions that
appear on the next two
slides.
This feature is found on page 24 of your textbook.
Robert L. Heilbroner
1919–
Why is it important to
study the great
economists of the
past?
It is important to study the
great economists because
they had ideas that had
historical importance.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 24 of your textbook.
Robert L. Heilbroner
1919–
What impact have
economists made in
the world? Explain
your answer.
Economists have made a
difference in that their
ideas have shaped
economic policies and
practices.
Click the mouse button or press the Space Bar to display the
answer. This feature is found on page 24 of your textbook.
End of Custom Shows
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