Chapter 1: Section 1 What is Economics? Scarcity and the Science of Economics Economics – study of how people try to satisfy unlimited & competing needs and wants. Scarcity – basic economic problem that arises because people have unlimited wants with limited resources causing them to make various economic decisions on how to allocate resources efficiently. Our Needs and Wants Needs – basic requirements for survival > food, clothing, shelter Wants – something we would like to have > car, watch, cell phone Divided into two groups – goods and services depending on use Goods – useful, tangible items (book, car) Services – work performed for someone (computer repairman) Types of Goods Durable goods – last 3 yrs or more (cars, refrigerators) Nondurable goods – last fewer than 3 yrs (food, clothes, pencils) Consumer goods – intended for final use by individuals (shoes, clothes, cars) Capital goods – tools or goods used by business to produce other products (machinery, equipment) Paradox of Value Why some essentials such as water are cheaper than nonessentials, such diamonds. Goods and services must be scarce & have usefulness. Diamonds are scarce & useful. Water on the other hand has usefulness, but not scarce. Wealth The accumulation of products that are tangible, scarce, have utility and are transferable. Nations – natural resources, factories, stores, highways, money, etc. Individuals – cars, houses, money, etc. Questions all Nations Face WHAT to Produce HOW to Produce FOR WHOM to Produce Questions all Nations Face WHAT to Produce HOW to Produce FOR WHOM to Produce Why does this matter? Gross Domestic Product The monetary value of all final goods, services, and structures within a country’s borders in a 12month period. GDP is the most comprehensive measure of a nation’s total output and a key measure of its economic wealth.