Journal
• Do you think the study of economics is
worth your time and effort? 
• According to a Harris poll, a huge
percentage of Americans think it is. 
• They must know what economists know—
that a basic understanding of economics
can help make sense of the world around
us.
1
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Portfolio Change!!!!
1. Chapter Assignments Will be assigned, given a due date &
collected for approval!
 If ok/approved-then you will get credit for
the assignment!
 If you do not complete your assignmentsyou will lose ½ credit for that chapter!
2
Chapter 1
What Is Economics?
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Economics and You
The study of economics will help you
become a better decision maker–it helps
you develop a way of thinking about how
to make the best choices for you.
Click the Speaker button
to listen to Economics
and You.
5
Chapter Objectives
• Explain the fundamental economic
problem. 
• Examine the three basic economic
questions every society must decide.
• Explain the relationship among scarcity,
value, utility, and wealth. 
• Understand the circular flow of
economic activity
• Analyze trade-offs and opportunity costs. 
• Explain decision-making strategies.
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Did You Know?
• We witness scarcity with each year’s “hot”
new toy. Inspired by hunter President
Teddy Roosevelt, Americans coveted the
teddy bear in 1906. Cabbage Patch dolls
were big during the 1980s, as were Tickle
Me Elmos in 1996. By 1999 Game Boy’s
Pokémon was the rage with a 10-cent
trading card. The most-prized first-edition
pocket monsters were in such short supply
that they commanded from $8 to $182.
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Fundamental Economic Problem
• Scarcity is the condition where unlimited
human wants face limited resources. 
• Economics is the study of how people
satisfy wants w/scarce resources. 
• Needs are required for survival; wants are
desired for satisfaction. 
• Someone has to pay for production costs.
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Discussion Question (DO NOT WRITE)
Why do you think scarcity is an issue
with the rich as well as the poor?
It is a human trait that few people,
regardless of their economic status,
are satisfied with what they have.
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Three Basic ?’s
1. What must we produce? Society must
choose based on its need. 
2. How should we
produce it? Society
must choose based
on its resources. 
Figure 1.1
3. For whom should
we produce?
Society must
choose based on its
population & other
available markets.
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Discussion Question
How might the economic decisions of a
mountainous island society differ from
those of a mountainous landlocked
society?
An island society has water
resources to consider and likely a
more limited population.
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Factors of Production
• are resources necessary to produce what
people want or need. 
• Capital--means by
• Land is the
which something is
society’s limited
produced such as
natural resources;
$$$, tools, equip,
1. Landforms
machinery,&
factories.
2. Minerals
3. vegetation,
4. animal life
5. climate. 
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• Labor--workers who apply their efforts,
abilities, & skills to production. 
• Entrepreneurs are risk-takers who combine
land, labor, & capital into new products. 
• Production is creating goods & services—
the result of land, capital, labor, &
entrepreneurs.
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Figure 1.2
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The Factors of Production (cont.)
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Scope of Economics
• deals w/description of economic activity—
Gross Domestic Product, unemployment
rate, govt spending, tax rates, etc. 
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• Explanation refers to how economists
communicate knowledge--economy & its
activities to the society’s population. 
• Prediction refers to how yesterday’s &
today’s economic activities advise us of
potential future activity.
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Discussion Question
Why are entrepreneurs an economy’s
driving force?
Their abilities to start new businesses
and introduce new products may reenergize a sluggish economy or
strengthen a successful economy.
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Economic
Choices
1. What to
produce
2. How to
produce
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Reading
Strategy
3. For
whom to
produce
List & describe the 3 economic choices
each society must make.
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Journal
Describe the factors of production.
The factors of production are land,
capital, labor, & entrepreneurs.
List the three basic economic
questions every society must answer.
Every society must ask what to
produce, how to produce, &
for whom to produce.
20
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Objective
An economic product is a good or service that is
useful, relatively scarce, and exchangeable. 
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information. Section 2 begins on page 12 of your textbook.
Did You Know?
• The 20 percent of the world’s people who
live in the wealthiest nations consume 86
percent of the world’s goods and services.
The 20 percent who live in the poorest
nations consume just 1.3 percent.
22
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Discussion Question
What makes economics a social
science?
Economics is a study of human
behavior because it looks at the
decisions people make and how they
react to those decisions.
23
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Goods, Services, & Consumers
• Goods--items that are economically useful
or satisfy a want.
tangible & can be classified as
consumer/capital & durable/non-durable.

• Services are work performed for someone
& are intangible. 
• Consumers use goods & services to satisfy
wants & needs.
24
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Value, Utility, & Wealth
• Value is worth expressed in dollars &
cents.. 
• Utility--good’s or service’s capacity to
provide satisfaction, which varies w/needs
& wants of each person. 
• Wealth--accumulation of goods that are
tangible, scarce, useful, & transferable to
another person.
25
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Discussion Question
Why might a wealthy society not have
as much economic staying power as
another wealthy society with a highly
skilled labor force?
(possible answers) may indicate that
wealth is usually based on limited
natural resources, whereas labor can
produce more goods and services.
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Circular Flow of Economic Activity
• Markets are locations/mechanisms for
buyers & sellers to trade. 
• A factor market is where people earn their
incomes. 
• A product market is where people use their
income to buy from producers.
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28
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Reading
Strategy
Factor
Market
Producers
sell goods
& services
Money
returns to
businesses
Businesses
produce more
goods &
services
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Objectives
After studying this section, you will be able to: 
– Analyze trade-offs and opportunity costs. 
– Explain decision-making strategies. 
Click the Speaker button to
listen to the Cover Story.
31
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information. Section 3 begins on page 19 of your textbook.
Productivity & Econ. Growth
• Productivity is a measure of the amount of
output produced by the amount of inputs
w/in a certain time. 
• Specialization & division of labor may
improve productivity b/c they lead to more
proficiency.
32
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• Investing in human capital improves
productivity b/c when people’s skills,
abilities, health, & motivation advance,
productivity increases. 
• Economic growth depends on high
productivity.
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Trade-Offs & Opportunity Cost
• Trade-offs are the alternative choices
people face in making an economic
decision. 
• Opportunity cost is the cost of the next
best alternative among a person’s choices.
34
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Trade-Offs and Opportunity Cost (cont.)
Figure 1.5
35
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The Road Ahead
• will help us know how the economy works
on a daily basis. 
• It helps us understand a free enterprise
economy. 
• study of economics helps us to become
better decision makers. 
36
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Making decisions
Reading
Strategy
Trade-offs
Opportunity
costs
Explain what you need to know to
become a good decision maker.
37
Chapter 1 Portfolio Assignment:
1. Design a Newspaper Ad that illustrates
the 3 basic economic questions.
2. Use one plain white sheet of paper.
3. More creative the better score!!!
4. Due when the portfolio is turned in.
38
Identifying Key Terms
Choose the letter of the term that best completes the following
sentences.
B Economic products designed to satisfy people’s
___
wants and needs are called _____ .
J The _____ of a CD player can be expressed in
___
dollars and cents.
I
___
Haircuts, repairs to home appliances, and
entertainment are examples of _____ .
A.
B.
C.
D.
E.
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capital goods
consumer goods
consumers
factors of production
utility
F.
G.
H.
I.
J.
human capital
opportunity cost
scarcity
services
value
Click the mouse button or press the Space Bar to display the
answer. The Chapter Assessment is on pages 28–29.
Identifying Key Terms (cont.)
Choose the letter of the term that best completes the following
sentences.
H
___
_____ arises because society does not have
enough resources to produce all the things people
would like to have.
G The _____ of going to a football game instead of
___
working would include the money not earned at
your job.
F _____ is the sum of the skills, abilities, health, and
___
motivation of people.
A. capital goods
F. human capital
B. consumer goods
G. opportunity cost
C. consumers
H. scarcity
D. factors of production
I. services
E. utility
J. value
40
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to display the answer.
Identifying Key Terms (cont.)
Choose the letter of the term that best completes the following
sentences.
E _____ is another name for the capacity of a product
___
to be useful.
A The only factors of production that are themselves
___
the result of earlier production are _____ .
D Land, capital, labor, and entrepreneurs are _____ .
___
C People who use goods and services to satisfy their
___
wants and needs are called _____ .
A.
B.
C.
D.
E.
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capital goods
consumer goods
consumers
factors of production
utility
F.
G.
H.
I.
J.
human capital
opportunity cost
scarcity
services
value
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to display the answer.
Click the mouse button to return to the Contents slide.
Section Assessment (cont.)
Explain why the study of economics is
important to the American free
enterprise system.
Economic issues are an important
part of many political campaigns. An
understanding of the issues will help
a citizen decide how to vote in an
election.
43
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to display the answer.
Section 1: Scarcity and the Science
of Economics
• The basic economic problem of scarcity is due to
the combination of people’s seemingly unlimited
wants and relatively scarce resources. 
• In a world of scarce resources, There Is No Such
Thing As A Free Lunch (TINSTAAFL). 
• Because of scarcity, society has to decide WHAT,
HOW, and FOR WHOM to produce. 
• Land, capital, labor, and entrepreneurs are the
four factors of production required to produce
the things that people use.
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Section 1: Scarcity and the Science
of Economics (cont.)
• Entrepreneurs are risk-taking individuals who go
into business in order to make a profit; they
organize the other factors of production. 
• The scope of economics deals with description,
analysis, explanation, and prediction.
45
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Section 2: Basic Economic Concepts
• Consumers use goods and services to satisfy
their wants and needs. 
• Something has value when it has utility and is
relatively scarce. 
• Wealth consists of products that are scarce,
useful, and transferable to others, but wealth
does not include services, which are intangible.

• Markets link individuals and businesses in the
circular flow of economic activity; the factors of
production are traded in factor markets; goods
and services are traded in the product markets.
46
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Section 2: Basic Economic Concepts
(cont.)
• Productivity and investments in human capital
help economic growth; investments in human
capital are among the most profitable of all
investments. 
• Increases in specialization and division of labor
cause more economic interdependence.
47
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Section 3: Economic Choices and
Decision Making
• The opportunity cost of doing something is the
next best alternative, or trade-off, that you give
up. 
• A decision-making grid can be used to help
evaluate alternatives. 
• A production possibilities frontier shows the
various possible combinations of output that can
be produced when all resources are fully
employed; production inside the frontier occurs
when some resources are idle or are not being
used to their maximum capability.
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Section 3: Economic Choices and
Decision Making (cont.)
• When economic growth takes place, the
production possibilities frontier shifts outward,
showing that more products are produced than
before. 
• The economic way of thinking involves
simplification with model building, cost-benefit
analysis to evaluate alternatives, and incremental
decision making. 
• The study of economics will make you a better
decision maker and will help you to understand
the world around you; however, the study of
economics will not tell you which decisions to
make.
49
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Section 3: Economic Choices and
Decision Making (cont.)
• The study of economics helps people understand
how a free enterprise economy makes the
WHAT, HOW, and FOR WHOM decisions.
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Continued on next slide.
Continued on next slide.
How should the goods
and services be
produced?
What goods and services
should be produced?