Fundamental
Economic Concepts
Students will explain why limited
resources and unlimited wants result in
scarcity, opportunity costs, and tradeoffs
for individuals, businesses and
governments
What is Economics?
Economics is the study of how people make
choices to satisfy their wants

Give some examples1.
2.
3.
What are the Fundamental Concepts of
Economics?

Scarcity- occurs because there are unlimited wants but only limited
resources to satisfy those wants.
1. Resources- are all the things people can use to make goods or
products.
2. Goods- include things such as food, clothing, homes, furniture,
cars and computers.
3. Limits- there is a limit to all resources and because of this people,
businesses and governments must make a decision how they are going
to allocate their resources to satisfy wants.
What are the Fundamental Concepts of
Economics?
4. Allocation- distribution of resources in a systematic way.
5. Shortages- occur when producers will not or cannot offer goods
or services at current prices (NOT THE SAME AS SCARCITY)
6. Services- Actions or activities one person performs for another
7. Capital Goods- Capital goods refer to real products that are
utilized in the production of other products. Capital goods include
factories, machinery, tools, and various buildings
8. Consumer Goods- used for the masses- include cars, CD’s and
clothing
Opportunity Costs

Trade Off- people have to give up something to
gain something all the time (RESOURCES)

Opportunity Costs- the next most important thing
you give up to get something.

Give an Example
1.
2.
3.
The Four Factors of Production

Factors of Production- resources that are used to make all goods
and services.
1. Land (natural)- All natural resources that are used to
produce goods and services.
2. Labor (human)- Any effort a person devotes to a task for
which that person is paid.
3. Capital- Any human-made resource that is used to
create other goods and services.
a. Physical Capital- all the tools, machines, and
other equipment a business needs
b. Human Capital- the skills and knowledge of a
company’s workers
Four Factors of Production
4. Entrepreneur- is a person who starts and manages a business.
1. Come up with the ideas how to produce something
people want to buy.
2. Organize the land, labor, capital resources needed to
produce the goods or services.
3. Take the risk of investing money in the hope of
making a profit.
Give Examples
1.
2.
3.
What is the right decision?
Student Decision-making Grid
Alternatives
Sleep late
Wake up early to study
Benefits
Enjoy more sleep
Have more energy during the day
Better grade on test
Teacher and parental approval
Personal satisfaction
Decision
Sleep late
Wake up early to study for test
Opportunity cost
Extra study time
Extra sleep time
Benefits forgone
Better grade on test
Teacher and parental approval
Personal satisfaction
Enjoy more sleep
Have more energy during the day
Lets Make Some Choices!!!!
Land
Labor
Capital
What is a Production Possibilities
Curve?
Production Possibility Curve- A production possibilities graph
shows alternative ways that an economy can use its resources.
1. The production possibilities frontier is the line that shows the
maximum possible output for that economy.
Production Possibilities Graph
Watermelons
(millions of tons)
25
Shoes
(millions of pairs)
Shoes (millions of pairs)

20
15
10
5
0
5
10
15
20
Watermelons (millions of tons)
25
What can happen in an economy?

Efficiency- means using resources in such a way as to maximize the
production of goods and services. An economy producing output
levels on the production possibilities frontier is operating efficiently.
1. Underutilization- any point that is inside the line; using
fewer resources than the economy is capable of using.
2. Growth- If more resources become available, or if
technology
improves, an economy can increase its level of
output and grow. When this happens, the entire production
possibilities curve “shifts to the right.”
Economy cont’d…
3. Cost- A production possibilities graph shows the cost of producing
more of one item. When we choose one option over another.
4. Law of increasing costs- this law states that as production
switches from one item to another, more and more resources are
necessary to increase production of the second item.
Cost Benefit, and Voluntary Exchange

Rational Decisions- When we weigh the benefits and costs of each
option.
1. Cost-Benefit Analysis- when people choose the option were
the benefits outweigh the costs.
2. Marginal Benefits- additional pleasure is gained but not
needed .
When the marginal benefits you receive from a decision are equal
to or greater that the marginal costs, you are making a rational
decision
Thinking on the Margin
Options
Benefit
Opportunity Cost
1st hour of extra study
time
Grade of C on
test
1 hour of
sleep
2nd hour of extra study
time
Grade of B on
test
2 hours of
sleep
3rd hour of extra study
time
Grade of B+ on test
3 hours of
sleep
Specialization

Specialization- when people focus on one kind of
service or product

Voluntary Exchange- When people who
specializes buy and sell goods to each other.

Division of Labor- Each person does one part of a
job to create a larger product.