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
Wants –
Needs –

People always want
more, no matter what
they have
 wants are unlimited, but
resources to fill are limited

Scarcity –
 not a temporary shortage,
it is a problem facing
individuals, businesses,
govt., society

Science to study it is
called economics
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Econ involves:
Examining –
Organizing, analyzing, and interpreting data
about those economic behaviors
Developing theories and economic laws that
explain how the economy works and to
predict what might happen in the future.

Principle 1:
 Choice is central to the
use of scarce resources.
 Choices about needs –
what kind of food
 Choices about wants –
these are unlimited &
ever changing


Principle 2:
Scarcity affects which
goods are made and
services are provided
 Goods – physical objects
that can be purchased
 Services – work that one
person performs for
another for payment
 Consumer –
 Producer –

Society must decide the mix of goods and services it
will produce
 what is produced depends on the natural resources
possessed
 but resources do not completely control what a country
produces

some countries decide by allowing consumers and
producers to decide
 in other countries, the govt. decides what goods and
services will be produced

This question also involves how much to produce
 the country must review its wants at any time to decide
this

This involves using scarce resources in the
most efficient ways to satisfy wants
 this is also influenced by the natural resources
that a society possesses
 ex. - growing crops – different approaches
 large unskilled labor force – labor intensive
methods – few machines
 highly skilled labor force – capital intensive – lots
of machines



This involves how goods will be distributed
among people in society
Questions –Need to determine how much
people should get how much they pay or
equal share
Distribution networks –
-the economic resources needed to produce goods
and services

Includes all natural
resources found on or
under the ground that
are used to produce
goods and services

is all the human time,
effort, and talent that
goes in to the making
of products

is all the resources
made and used by
people to produce and
distribute goods and
services
 ex. –

human capital –
 ex. – college, job
training

Is the combination of
vision, skills, ingenuity, and
willingness to take risks
that is needed to create
and run new businesses
 most entrepreneurs are
innovators
 try to anticipate and meet
needs of consumers in new
ways
 new product, method of
production, way of marketing
or distributing

Are also risk takers – risk
time, energy, creativity,
money in hope for profit
-What shapes the economic choices?
-incentive –
-utility –
-“economize” – consider both incentive and utility –
-make decisions according to what you believe
is the best combination of costs and benefits
FACTOR 1:

Choices are shaped by
incentive, expected utility,
and the desire to economize

Costs vs. benefits – looking
for best mix of costs and
benefits

Making decisions – guided by
self-interest – looking for
ways to maximize utility
FACTOR 2:

Every choice involves costs

Money, time, or something
else of value
Trade-offs –
EXAMPLE 1:

*choice – semester long
course at university vs. 6
week course at high school

selects 6 week course, less
credits, but gets summer
vacation
EXAMPLE 2:
Opportunity cost –
 Alternative over another
 *choice – work for year vs.
work for 6 months and
travel for months
 Selects work for 6 months
and travel for 6 months –
less income, but visits
friends

-cost-benefits analysis –
-useful tool for individuals, businesses and
govt. when to evaluate relative worth of
economic choices




application of cost-benefit analysis is
decision-making grid
shows what you get and what you give up
when you make choices
costs and benefits change over time, as do
goals and circumstances
changes influence decisions people make



marginal costs –
marginal benefit –
analysis is central to study of economics
 helps explain the decisions consumers,
producers, and govt. make as they try to
meet their unlimited wants with limited
resources

Economic models –

Production Possibilities Curve(PPC) – a graph
used to illustrate the impact of scarcity on an
economy by showing the maximum number
of goods or services that can be produced
using limited resources

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Resources are fixed – no way to increase the availability of
land, labor, capital and entrepreneurship
All resources are fully employed – there is no waste of any
of the factors of production
Only two things can be produced – assumption simplifies
the situation and suits the graphic format – one variable
on each axis
Technology is fixed – no technological breakthroughs to
improve methods of production
-Curve represents border or frontier between what is and
what is not possible to produce
also called a Production Possibilities Frontier
useful for bus. & govt., but can be used by individual


Figure 1.3 – 5 production possibilities for
loaves of bread and bran muffins
Figure 1.4 – graph plotted from data in table –
line is the PPC
 points represent maximum of one product relative
to the other
 also shows opportunity cost of one product
compared to the other

No economy operates according to simplified
assumptions of PPC
 but it spotlights concepts that work in the real
world of scarce resources


Efficiency –
Underutilization –

Figure 1.5 – guns vs. butter – military vs.
consumer production
 each point the on curve shows different
combination of each, and each represents
efficiency
 each point inside the curve is underutilization, and
points outside the curve are impossible because
resources are fixed

Figure 1.5 – switching
from guns to butter or
butter to guns
 each additional unit
costs more to make than
the last, explains bow
shape of curve
 reason – making one is
different from making
the other – new
machines, factories, and
retrain Workers

The PPC represents
present PP if resources
are fixed, but that
usually changes over
time
 additional resources
means new PP and the
PPC moves outward

Example: A Shift in the
PPC
in the 1700s the US
occupied only a small
area along the Atlantic
 100 yrs. Later, it expanded
to the Pacific – meaning
the addition of resources,
in addition to the added
immigrants means
additional labor
 this is shown on the PPC as
a shift of the curve outward
– this is called economic
growth



Economics is something that everyone knows
and works with everyday
Economists study this to figure out why some
nations are rich or poor and why
consumers want one product while others
want another product
Statistics –

Models are based on assumptions and are
simplified because they are based on a
limited number of variables
 models expressed in words, graphs or equations
 explain why things are as they are, help predict
future economic activity


Look for trends, connections and other
interesting relationships
Showing numbers in relation to other
numbers can reveal patterns in the data



Graphs are used to ID
trends in statistics
Line graph – useful for
showing changes over
time
Line graphs use 2 sets of
numbers or variables –
one on horizontal and
one on vertical axis

The numbers of what is
being used are plotted
on the graph and
connected to form a line
 upward slope – upward
trend
 downward slope –
downward trend
 straight line – same slope
 curved line – varied slope

Bar Graph – useful for
comparisons
 vividly shows changes in
data

Pie Graph –
 slices drawn in
proportion to the
number they represent
-Microeconomics –
-Macroeconomics – is the study of the behavior of
the economy as a whole and involves topics such as
inflation, unemployment, aggregate demand, and
aggregate supply

Micro –
 examines specific, individuals elements in the
economy
 prices, costs, profits, competition, behavior of
consumers and producers
 areas of specialized concentration
 business organization, labor markets, agricultural
economics, econ of environmental issues


Macro –
examines the big picture – economy as a whole
 the effect of widespread unemployment on the whole
nation
 a general rise on prices
 studies the consumer sector (household sector),
business sector, and public or govt. sector

Sector –
 bring a national or global perspective to work
 study monetary system, up and down of business
cycles, impact of national tax policies on economy,
international trade and effect on rich and poor nations
-Positive economics – way of describing and
explaining economics as it is and not how it
should be, involves verifiable facts
- Normative economics –
POSITIVE ECONOMICS

Uses scientific method –
NORMATIVE ECONOMICS

Based on value judgments
 goes beyond facts to ask if

Statements can be tested
against real world data and
either proved or disproved
actions are good, values
differ, so then
recommendations will
Born in Kirkcaldy,
Scotland in 1723
 Studied and taught
literature, logic, and
moral philosophy
 1764 – traveled to
France – the
Enlightenment – result
– looked at world in
new way


-1776 –
 challenged idea of mercantilism – govt. controlled





trade with its colonies
said free trade would be better
said people behave in ways that satisfy their
economic self-interests
an invisible hand guides the marketplace
buyers and sellers benefit from each transition
becomes foundation of modern economics