DATE YOUR PAPER AND COPY THE FOLLOWING
STATEMENTS DOWN IN YOUR SPIRAL NOTEBOOK
True False
1. One measure of value is utility _____ _____
_____ _____
2. A service is buying a new car
_____ _____
3. A service is teaching
4. Specialization means every
worker makes the entire
product
5. Human capital is the
production of human body
parts, used to help injured
soldiers in times of war
1.2
_____ _____
_____ _____
WHICH WOULD BE CONSIDERED A DURABLE GOOD,
A NONDURABLE GOOD OR A SERVICE?
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Car wash
Gasoline
T.V Set
DVD
Blouse
Magazine
Course in first aid
Box of cereal
Lawn mower
Eye exam
Bus ride
CD
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Service
Nondurable
Durable
Durable
Nondurable
Nondurable
Service
Nondurable
Durable
Service
Service
Durable
VALUE
• A worth that can be expressed in
dollars and cents
• For something to have value it must:
• Be scarce
• Have utility
• Capacity to be useful
• Capacity to provide satisfaction
• This may vary from person to person
PARADOX OF VALUE
• Adam Smith asked:
• Why is it that
sometimes needs
are less valuable
than wants?
Shouldn’t water be
more valuable than
diamonds?
PARADOX OF VALUE
(AKA THE DIAMOND–WATER PARADOX)
• the apparent
contradiction that,
although water is on
the whole more
useful, in terms of
survival, than
diamonds, diamonds
command a higher
price in the market.
• What might change
this paradox
between diamonds
and water?
WEALTH
• Includes:
• All products that
are tangible
• Scarce
• Useful
• Transferable
Which of the following are
counted as a part of
wealth?
1. Car wash
2. Gasoline
3. T.V Set
4. DVD
5. Blouse
6. Magazine
7. Course in first aid
8. Box of cereal
9. Lawn mower
10. Eye exam
11. Bus ride
12. CD
ASSIGNMENT AND HOMEWORK
Finish the vocabulary for 1.2 (PP 15 – 17)
• Market
• Factor Market
• Product Market
• Economic Growth
• Productivity
• Human Capital
• Division of Labor
• Specialization
• Economic interdependence
DATE YOUR PAPER AND COPY THE FOLLOWING
STATEMENTS DOWN IN YOUR SPIRAL NOTEBOOK
True False
1. An opportunity cost is the
_____ _____
same as a trade off
2. A production possibility frontier _____ _____
is a diagram that shows
combinations
3. Free enterprise system is what _____ _____
we have in the US
4. The study of economics helps _____ _____
people make better choices
5. Opportunity costs are incurred _____ _____
when trade-offs are made.
1.3
DID YOU KNOW…
The 20 percent of the world’s people who live in the
wealthiest nations consume 86 percent of the world’s
goods and services. The 20 percent who live in the
poorest nations consume just 1.3 percent.
The U.S. Consumer
The United States, with less than 5 % of the global population, uses about a
quarter of the world’s fossil fuel resources—burning up nearly 25 % of the
coal, 26 % of the oil, and 27 % of the world’s natural gas.
As of 2003, the U.S. had more private cars than licensed drivers, and gasguzzling sport utility vehicles were among the best-selling vehicles.
New houses in the U.S. were 38 % bigger in 2002 than in 1975, despite having
fewer people per household on average.
1.2 ASSESSMENT
Why might a wealthy society not have
as much economic staying power as
another wealthy society with a highly
skilled labor force?
10
THE CIRCULAR FLOW OF ECONOMIC
ACTIVITY
Markets are locations/mechanisms for buyers and
sellers to trade. They are classified as local,
regional, national, global, and cyberspace. 
A factor market is where people earn their
incomes. Factor markets center on the four
factors of production: land, capital, labor, and
entrepreneurs. 
A product market is where people use their income
to buy from producers. Product markets center on
goods and services.
CIRCULAR FLOW OF ECONOMIC
ACTIVITY
PRODUCTIVITY AND ECONOMIC GROWTH
• Productivity is a measure of the amount of
output produced by the amount of inputs within a
certain time. Productivity increases with efficient
use of scarce resources. 
Specialization and division of labor may
improve productivity because they lead to
more proficiency (and greater economic
interdependence).
PRODUCTIVITY AND ECONOMIC GROWTH
• Investing in human capital improves productivity
because when people’s skills, abilities, health,
and motivation advance, productivity increases.

Economic growth depends on high
productivity. Yet, an economy’s productivity
may be affected by its interdependence—
reliance on others and their reliance on us
to provide goods and services.
NAME THAT ECON. TERM
1. Condition of not having
enough resources
2. Sum of those economic
products that are tangible,
scarce, useful and
transferable
3. People with all their efforts,
abilities and skills
•
•
•
•
•
•
•
•
•
•
•
Wealth
Scarcity
Good
Labor
Value
Economics
Standard of
living
Paradox of
value
Capital
Trade-off
Opportunity cost
NAME THAT ECON. TERM
1. Worth that can be
expressed in dollars and
cents
2. Study of how people try to
satisfy their need through
the careful use of scarce
resources
3. Tools, equip, machinery
and factories used in the
production of goods and
services
•
•
•
•
•
•
•
•
•
•
•
Wealth
Scarcity
Good
Labor
Value
Economics
Standard of living
Paradox of value
Capital
Trade-off
Opportunity cost
OBJECTIVES FOR 1.3
– Analyze trade-offs and opportunity
costs.
– Explain decision-making strategies.
Introduction
SECTION 3
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.
18
DID YOU KNOW
• Economists reward their greatest for
breakthrough discoveries. The 1999 Nobel
Prize for Economics went to Robert A. Mundell,
a Canadian economist at New York’s Columbia
University, for his career-long work in
international currency exchange rates, vital in
today’s global marketplace. The prize is worth a
million dollars in U.S. currency.
Trade-Offs and Opportunity Cost
Trade-offs are the alternative choices people
face in making an economic decision. A
decision-making grid lists the advantages
and disadvantages of each choice. 
Opportunity cost is the cost of the next best
alternative among a person’s choices. The
opportunity cost is the money, time, or
resources a person gives up, or sacrifices,
to make his final choice.
20
TRADE-OFFS AND OPPORTUNITY COST (CONT.
PRODUCTION POSSIBILITIES
• The production possibilities frontier diagram
illustrates the concept of opportunity cost. It
shows the combinations of goods and/or
services that can be produced when all
productive resources are used. The line on the
graph represents the full potential—the frontier—
when the economy employs all of these
productive resources. 
Identifying possible alternatives allows an
economy to examine how it can best put its
limited resources into production.
PRODUCTION POSSIBILITIES (CONT.)
• Considering different ways to fully employ its
resources allows an economy to analyze the
combination of goods and services that leads to
maximum output. 
An economy pays a high cost if any of it resources
are idle. It cannot produce on its frontier and it
will fail to reach its full production potential. 
Economic growth made possible by more resources,
a larger labor force, or increased productivity
causes a new frontier for the economy.
PRODUCTION POSSIBILITIES FRONTIER
PRODUCTION POSSIBILITIES FRONTIER
PRODUCTION POSSIBILITIES FRONTIER
Thinking Like an Economist
Building simple models helps economists analyze
or describe actual economic situations.
Cost-benefit analysis helps economists evaluate
alternatives by looking at each choice’s cost and
benefit.
Taking small, incremental steps in implementing an
economic decision helps economists test
whether the estimated cost of the decision was
correct.
27
NAME THAT ECON. TERM
1. Manufactured goods needed
to produce other goods and
services
2. Cost of the next best
alternative
3. Alternative choices made by
consumers
•
•
•
•
•
•
•
•
•
•
•
Wealth
Scarcity
Good
Labor
Value
Economics
Standard of
living
Paradox of
value
Capital good
Trade-off
Opportunity
cost
NAME THAT ECON. TERM
1. Quality of life based on the
ownership of the necessities
and luxuries that make life
easier
2. Situation in which some
necessities have little value
while some non necessities
have a much higher value
3. Tangible item that is
economically useful or that
satisfies an economic want
•
•
•
•
•
•
•
•
•
•
•
Wealth
Scarcity
Good
Labor
Value
Economics
Standard of
living
Paradox of value
Capital
Trade-off
Opportunity cost
REVIEW: PAGES 28-29
•
•
•
•
•
Review Content Vocabulary #s 1-10
Review the Main Ideas #s 22-28
Critical Thinking #s 30-32
Math Practice #34
Interpreting Cartoons #36