ECONOMICS
Chapter One
CHAPTER ONE
1.
2.
3.
Scarcity and the Science of
Economics
Basic Economic Concepts
Economic Choices and Decision
Making
1.1 SCARCITY AND THE
SCIENCE OF ECONOMICS
BELL WORK:
ON A SEPARATE SHEET
OF PAPER, DEFINE
CHAPTER ONE,
SECTION ONE
VOCABULARY IN YOUR
ECONOMICS
TEXTBOOK.
ECONOMICS:
ALABAMA COURSE OF STUDY
1.
Explain the role
of scarcity in
answering the
basic economic
questions of
what, how, how
much, and for
whom to produce.
1.1 OBJECTIVES:
1.
2.
3.
4.
Identify the four key elements of economics
Explain the fundamental economic problem.
Examine the three basic economic questions
every society must decide.
Identify the four factors of production.
1.1 SCARCITY AND
THE SCIENCE OF ECONOMICS
Four Key Elements of Economics
 Scarcity
 TINSTAAFL
 Three Basic Questions
 Four Factors of Production
 Production

FOUR KEY ELEMENTS OF ECONOMICS
 study
of how
people try to
satisfy what
appears to be
seemingly and
unlimited and
competing wants
through the
careful use of
relatively scarce
resources
FOUR KEY ELEMENTS OF ECONOMICS

Description
 Economists simply tell what is happening.
 They use Gross Domestic Product (GDP).
The dollar value of all final goods and services, and structures
produced within a country’s borders in a 12-month period
 Most comprehensive measure of a country’s total output
 Key measure of an economy’s health

FOUR KEY ELEMENTS OF ECONOMICS

Analysis
 Economists must discover why and how things
happen.
 Analysis helps economists understand the
problems and will later help economists offer
solutions.
FOUR KEY ELEMENTS OF ECONOMICS

Explanation
 Economists must
communicate their
discoveries to the general
public.
 This helps the citizens
understand the
seriousness and
complexities of economic
issues.
FOUR KEY ELEMENTS OF ECONOMICS

Prediction
 Economists must decide
what they think will
happen.
 This helps the citizens of
a country make decisions
to determine what
policies are best for the
nation.
SCARCITY
 Scarcity:
The
fundamental
economic problem
 Condition that
results from society
not having enough
resources to
produce all the
things people
would like to have.
SCARCITY
 We
all have needs: basic
requirements for survival.
 We all have wants: way of expressing
a need.
 Example: Need food, want pizza
TINSTAAFL
 Everything
has a
cost.
 Production costs
 Opportunity costs:
costs of the next best
alternative use of
money, time, or
resources when one
choice is made
rather than another
THREE BASIC QUESTIONS




Because of scarcity, society
must answer three
questions:
WHAT to produce
 We can’t have everything
we want, so we must
choose what we want
most!
HOW to produce
 A lot of equipment and a
few workers
 A lot of workers and few
pieces of equipment
FOR WHOM to produce
FOUR FACTORS OF PRODUCTION


Land
 “natural resources not
created by humans”
 Resources are fixed and
in limited supply
Capital
 Tools, equipment,
machinery, and factories
used in the production of
goods and services
 Also called capital goods
 Financial capital: money
used to buy the tools and
equipment used in
production
FOUR FACTORS OF PRODUCTION
Labor
 People with their efforts, abilities, and skills
 Includes all people except entrepreneurs
 Entrepreneurs
 Innovative people who take risks to do something
new with existing resources
 Driving force of the economy

Figure 1.2
PRODUCTION
Combination of the land, capital, labor, and
entrepreneurs
 The process of creating goods and services

1.2 BASIC ECONOMIC CONCEPTS
ECONOMICS:
ALABAMA COURSE OF STUDY
1.
Explain the role
of scarcity in
answering the
basic economic
questions of
what, how, how
much, and for
whom to produce.
1.2 BASIC ECONOMIC CONCEPTS
Objectives:
1. Explain the relationship among scarcity, value,
utility, and wealth.
2. Understand the circular flow of economic activity.
1.2 BASIC ECONOMIC CONCEPTS
Economic Products
 Value and Wealth
 Circular Flow of the
Economy
 Economic Growth
 Economic
Interdependence

ECONOMIC PRODUCTS


They are goods and services that are
useful, relatively scarce, and transferable
to others.
A good is an item that is economically
useful or satisfies an economic want.
 Consumer goods are the final
products.
 Capital goods are produced to be
used in the creation of other goods or
services.
 Durable goods are goods used
regularly and last longer than three
years.
 Nondurable goods are goods that
lasts less than three years when used
regularly.
ECONOMIC PRODUCTS
A service is a work that is performed for
someone.
 The difference between a good and service
is that a service is intangible or cannot be
touched.
 Consumers use goods and services to
satisfy their wants and needs.

VALUE AND WEALTH
 Value
is the worth of a
good or service.
 Scarcity is required for
value.
 The paradox of value is
the situation in which
some non-necessities
have more value than
some necessities.
VALUE AND WEALTH
 Utility
is also required
for value.
 Utility is the capacity
to be useful and
provide satisfaction.
 Utility is not
measurable and may
differ between
individuals.
VALUE AND WEALTH
 Scarcity
and utility are
the solutions to the
paradox of value.
 Wealth
is the
accumulation of
products (not services)
that are tangible,
scarce, useful, and
transferable from one
person to another.
CIRCULAR FLOW OF THE ECONOMY
A
market is a location or other mechanism
that allows buyers and sellers to exchange a
certain economic product.
 The factor market is the market where
productive resources (Ex: labor) are bought
and sold.
 The factor market is where people earn their
incomes.
 The product market is the market where
producers sell their goods and services to
consumers.
 The product market is where people use their
income.
ECONOMIC GROWTH
Economic
growth is the increase
in a nation’s total output of goods
and services to consumers.
Productivity
is the most important
factor in economic growth.
ECONOMIC GROWTH
Productivity
is the measure of the
amount of output produced by a
given amount of inputs in a specific
period of time.
It
increases with efficient use of
scarce resources.
ECONOMIC GROWTH
Division of labor and
specialization also
increase production.
 Division of labor is
work arranged so that
individuals do fewer
tasks than before. (Ex:
an assembly line)

ECONOMIC GROWTH
FYI:
The assembly
line cut the time
need to build a car
from a day and a
half to 90 minutes.
It cut the price of
the car by 50%
ECONOMIC GROWTH
 Specialization
is a
situation in which a
factor of production
performs tasks that
it can do relatively more efficiently than
others.
 Human
capital adds to productivity.
ECONOMIC GROWTH
 Human
capital is the sum
of the skills, abilities,
health, and motivation of
people.
 Investments in human and
physical capital increases
productivity.
 (Ex: education; See figure
1.4 on page 16)
ECONOMIC INTERDEPENDENCE
 Countries
rely on one
another to provide
goods and services.
(ex: oil)
 If
one area is unable
to perform its part, it
effects other areas.
(ex: drought creates
famine)
1.3 ECONOMIC CHOICES AND
DECISION MAKING
ECONOMICS:
ALABAMA COURSE OF STUDY
1.
Explain the role
of scarcity in
answering the
basic economic
questions of
what, how, how
much, and for
whom to produce.
1.3 ECONOMIC CHOICES AND
DECISION MAKING
Objectives:
1. Analyze trade-offs and
opportunity costs.
2. Explain decision-making
strategies.
1.3 ECONOMIC CHOICES AND
DECISION MAKING
Trade-offs
 PPF
 Free Enterprise
Economy

TRADE-OFFS
Trade-offs are alternative
choices.
 An opportunity cost is the
cost of the next best
alternative use of money,
time, or resources when one
choice is made rather than
another.
 TINSTAAFL!

PPF
The Production
Possibilities Frontier
(PPF) is a diagram that
shows different
combinations of goods
and/or services an
economy can produce
when all resources are
fully employed. (guns and
butter)
 See figure1.6.

PPF


A PPF shows the tradeoffs, opportunity costs,
and economic growth
between two goods
and/or services.
Using a PPF helps
economists make costbenefit analysis.
PPF
 Cost-benefit
analysis
is a way of thinking
about a problem that
compares the costs of an
action to the benefits
received.
FREE ENTERPRISE ECONOMY

The free enterprise
economy is a system in
which consumers and
privately owned
businesses, rather than
the government, makes
the majority of the
WHAT, HOW, and FOR
WHOM decisions.
FREE ENTERPRISE ECONOMY


It also promotes citizens’
standard of living.
The standard of living
is the quality of life
based on the possession
of the necessities and
luxuries that make life
easier.