Knowing these terms makes life easier for
the Semester
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The study in which a
society uses its limited
resources to produce
and distribute goods
and services to satisfy
unlimited human
wants.
It’s driven by rational
individual behaviors.
◦ We do what is in our best
interest.
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Macroeconomics
◦ The study of the big
picture.
◦ The economy as a
whole.
 GDP, CPI,
Unemployment,
national economy, etc.
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Microeconomics
The study of the
small parts of the
economy
◦ Individual choice by
people and firms.
 Dave’s decision to buy
a car,
 Ford’s decision to make
fuel efficient cars….
The use of goods and services.
also called demand.
Consumption can be divided into two basic
categories
Wants – goods desired but not absolutely
necessary for survival.
Give an example of a want.
Needs – basic requirements for survival.
Give an example of a need.
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Tangible items of value (material items that
can be seen and touched)
◦ Any item that satisfies a human want
◦ Free goods: ex. Free lunch, handouts at the fair….
 To what extent are free goods free?
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Economic Goods
◦ Manufactured items used to satisfy human wants.
 Ex. ? You name an example.
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A type of economic activity that is intangible,
cannot be stored, does not result in
ownership.
◦ Actions
◦ Non-material
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A service is consumed at the point of sale.
◦ Ex. (write at least one example)
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Postal service delivering mail
Truckers delivering products to stores
McDonald’s cooking hamburgers.
Teachers delivering knowledge.
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Production: the process of making goods and
services. (Supply)
Factors of Production- the resources used in the
making of goods and services.
◦ Land-natural resources obtained from the ground, the
sea, and from the air.
 Ex. Trees for lumber
 Iron ore for steel
 Oil for gasoline
◦ Labor-the human effort in the production of goods
and services.
◦ Capital-the man-made items used in the production of
goods and services
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Management: the skills to put the three other
Factors together to produce goods and
services.
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Scarcity – the first law of economics
◦ The concept that productive resources are always
scarce in relation to never ending wants and needs.
◦ The result of having limited resources to satisfy
unlimited wants and needs.
◦ Creates the need for choice
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Opportunity Cost – the second law of
economics.
◦ That which is given up when a decision is made.
 If it’s not a reality, it’s not a cost.
◦ This is the real cost of a decision
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Utility – the capacity of a good or service to
be useful.
◦ Everything has utility to someone.
◦ We have different utilities for every product. That is
why so many people buy ugly things.
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Maximum satisfaction – realizing the most
utility for the least cost.
◦ Degrees of satisfaction will vary
◦ Must choose between alternatives (opportunity cost)
to get maximum satisfaction.
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Law of Diminishing Returns – principle that
each succeeding unit of any good satisfies a
less intense desire than the previous one.