Chapter 1, Section 1
Scarcity and the Science of Economics
Fatmeh Reda
Information compiled from: Glencoe Economics: Principles and Practices
The Fundamental Economic Problem
Think of a time that you wanted something
and you couldn’t have it…
 Think of a time you had something and you
wanted something better…
 Think of a time you wanted something and you
felt like you had to have it… but it wasn’t a
necessity….
 We All Want More Than We Have

Scarcity

The main problem in
economics is SCARCITY
◦ This is the condition that
results from society not
having enough RESOURCES
to produce [or make] al the
things that people would like
to have

And so, ECONOMICS is
the study of how people try
to satisfy their endless
wants through the careful
use of scarce resources
Needs and Wants

NEED
◦ Basic requirement for
survival
◦ Examples: food, shelter,
clothing

WANT
◦ Something we would like
to have but is not
needed for survival
◦ Examples: toys, movies,
books, music players
Break-Up Activity
In pairs, make a list of items in your notes of things
you think are NEEDS. And then make a list of
things you think are WANTS.
Three Basic Questions
Because we live in a society that
has scarce resources, we need
to make careful economic
choices about how we are going
to use these resources.
WHAT to Produce




Should the resources be used
to make equipment for the
military or to make food?
Should a piece of empty land
in a city be used to build a
community park or more
houses?
Should the land be used to
make houses for low-income
people, middle-income, or
high-income?
Should we use farmland to
produce more corn or use it
to raise cows for meat?
HOW to Produce
Should factories use only machinery or
should workers?
 Should factories add more machinery and
fire people, or take our machinery and
hire more people?

OR
FOR WHOM to Produce
This decision is about who
will receive the things
produced
 Are houses for low-income
workers, professionals, or the
very rich?
 Think about target audience
and who will buy the product

◦ Who is the target audience for
the new Call of Duty game?
◦ Who is the target audience for
the Twilight series?
Factors of Production
There
are four resourcesland, capital, labor, and
entrepreneurs, that are
needed to produce the
goods and services we
want.
Land
“gifts of nature”
 Natural resources not
created by humans
 Includes: deserts, fertile
fields, forests, mineral
deposits, livestock,
sunshine, climate
 Because its limited, we
call is a fixed or limited
supply

Capital


Sometimes called
CAPITAL GOODS
These are the tools,
machinery,
equipment, and
factories used in to
produce goods and
services
◦ These were
themselves once the
result of production
Labor

People with
all their
efforts,
abilities, and
skills
Entrepreneurs
Risk takers in
search of profits
who does
something new with
existing resources
 Driving force
behind the
economy because
they start a new
business or bring
new products into
the market

The Scope of Economics
Economics is a social science because it
deals with the behavior of people as they
deal with scarcity
 Four elements to the study of Economics:
description, analysis, explanation, and
prediction

Description
Describes economic activity
 GROSS DOMESTIC PRODUCT [GDP]:
dollar value of all final goods, services, and
structures produced within a country’s
borders in a 12-month period

◦ This is the most COMPREHENSIVE measure
of a country’s total output and measures
nation’s economic health
Analysis
Helps to discover why things work and
how things happen, and why things are the
way they are
 Examples:

◦ Why are gas prices so high?
◦ Why are not enough wii made? And how does
this affect the price of a wii system?
Explanation

They communicate knowledge after they
analyze something
◦ Examples:
 Gas prices are high because the United States
stopped importing gasoline from Venezuela.
 Orange juice prices went up because Florida
suffered a freeze two weeks ago and they lost a
major part of their crop
 Corn is so cheap because many farm and factories
produced corn to the point that there is more corn
that is needed.
Prediction

Making smart guesses about what might
occur in the future
◦ Examples:
 Economists predict that house values will continue
to decrease in the next two years as more and
more homes go on foreclosure.
 Economists can predict that based on previous sales
of the wii system, coming up with a newly upgraded
system will sell out within a few days.