
Economics is how each country deals
with the allocation of SCARCE resources
for fulfilling a society’s needs and wants.
› ALL economic problems deal with scarcity

Scarcity is the lack of goods and
resources to meet unlimited wants and
needs.
Macroeconomics: is the study of
economics on a national or complete
scale (tax cuts, unemployment, and
entire retail industry)
 Microeconomics: is the study of
individual companies and people
making their own decisions in regards to
their best interest (supply and demand,
business choices, and where to shop)

All economic problems stem from this
economic condition.
 Our needs and wants are unlimited, but
our resources are limited.

› Lack of resources
› TINSTAAFL

NEEDS – Basic requirements for survival
› Examples: food, clothing, shelter

WANTS – Means of expressing a need.
› Example: You may NEED clothing, but you
WANT Gap Jeans.
› Can be determined based on a person’s
budget.

GOODS – Things you can touch, tangible
› Consumer Goods – Intended for final use by a consumer
(Pizza)
› Capital Goods – Intended to produce other goods (Oven)
› Durable Goods – A good that lasts three or more years
› Nondurable Goods – A good that lasts for less than three
years

SERVICES – Things you can’t touch, work performed
by someone, Intangible
› Examples: a haircut, carwash, concerts, home repair
The process of using up goods and services
to satisfy needs and wants is called
consumption.
What good or service are you going to
produce?
 Who are you going to produce your
good or service for?
 How are you going to produce your
good or service?

Capital – Goods and machinery used in the
production of various goods and services
Examples: tools, equipment, factories,
bulldozer, cash register
 Entrepreneurs – Risk taker that brings productive
resources together to produce something for profit.
 Land – Natural Resources, fixed and limited in
supply
 Labor – Human Resources

› Example: workers, skilled and unskilled
Most countries have to make trade-offs.
(Give up one thing in order to make
something else.)
 What we give up is called the
opportunity cost. (the next best
alternative use of money, time, or
resources)

Various combinations of goods and/or
services an economy can produce
when all productive resources are fully
employed.
 In other words…in order for an economy
to produce more of one thing, if all
resources are being used to their
maximum, something else must be given
up – trade-off/opportunity cost.

The Father of modern day Economics
 He wrote a book called the Wealth of
Nations
 He thought the economy works best
when the government stays completely
out of it. He called this the laissez-faire or
“hands off” approach.
 Invisible hand guides the economy.

Actions that take place in one sector of the
economy affect other parts of the
economy
 Interdependent activity goes in a circular
motion.
 Circular flow of activity takes place in factor
markets and product markets.

› Factor markets: where productive resources are
bought and sold.
› Product markets: where producers offer goods
and services for sale.