Lesson Objectives:
By the end of this lesson you will be able to:
*Explain why scarcity and choice are the basis of economics.
Scarcity and Choice
The study of economics begins with the fact that people cannot have everything they need and
want.
A need is something essential for survival such as food or medical care.
A want is something that we desire but that is not necessary for survival, such as video games or
stylish haircuts.
People satisfy their needs and wants with goods and services.
Goods are physical objects that someone produces, such as food, clothing, or video games.
Services are actions or activities that one person performs for another. Medical care and
haircuts are services.
The Problem of Limits
People’s needs and wants are unlimited. When one want is satisfied, others arise. For example,
after eating lunch, you might want to go to a movie or buy some clothes.
Goods and services, however, are limited. No one can have an endless supply of anything.
Sooner or later, a limit is always reached. The fact that limited amounts of goods and services
are available to meet unlimited wants is called scarcity.
At many different levels, scarcity forces people to make choices. You , for example have to
decide how to spend your time. If you decide to study for a test, you cannot go to the mall or
hang out with your friends at the same time. A store must choose between hiring ten new
workers or paying for more advertising to attract new customers. A city council might debate
whether to use its money to fix an ageing school building or to hire more firefighters.
Economics is the study of how people seek to satisfy their needs and wants by making choices.
1. people act individually
2. People act in groups (such as businesses)
3. People also act through governments
Since people can act in these three different ways, economists
study all three.
Scarcity Versus Shortage
Scarcity is not the same thing as shortage. A shortage occurs when consumers want more of a
good or service than producers are willing to make available at a particular price. Shortages may
be temporary or long-term.
Unlike shortages, scarcity always exists. There simply are not enough goods and services to
supply all of society's needs and wants. This is because the resources that go into making those
goods and services are themselves scarce.
Video (Scarcity)
Video (Entrepreneur)
Entrepreneurs and the Factors of Production
An entrepreneur is someone who opens a business (large or small) with the purpose of
providing a good or service to the public. These people decide how to combine resources to
create new goods and services. To make a profit, an entrepreneur must be willing to take some
risks.
An entrepreneur must assemble factors of production. Factors of production are the resources
used to make all goods and provide all services.
Three Main Factors of Production:
1. Land- Things from the earth that are used to make goods or provide services. Soil for
farming, oil, iron, coal, water, and forests.
2. Labor- The time and energy that someone devotes to tasks for which they are paid.
Medical care given by a doctor, tightening of a bolt by an assembly-line worker, an auto
mechanic fixing a car.
3. Capital- Any human-made resource that is used to produce other goods and services.
There are two different kinds of capital.
1. Physical Capital- Human-made objects used to create other goods and services
such as a factory or tools.
2. Human Capital- The knowledge and skills a worker gains through education and
experience. An auto mechanic increases their human capital through training
and experience.
An economy requires both physical & human capital to produce
goods and services. A doctor not only needs to go to medical
school to receive training but also needs medical equipment such
as a stethoscope to provide good healthcare to his/her patient.
Benefits of Capital
Capital is a key factor of production because people and
companies can use it to save a great deal of time and money.
Family Dishwasher Example
Scarce Resources
All goods and services are scarce because the resources used to produce them are scarce.
Gasoline Example