Unit 8: Introduction to
Economics
The Basics of
Economics
I. What is Economics?
• The study of how we make decisions in a
world where resources are limited
• We have many needs and wants, but we have
to make decisions because of scarcity
II. Economic Decision Making
• Because of scarcity, every government,
business, and individual has to answer 3
questions:
1. What to produce?
2. How to produce?
3. For whom to produce?
III. Economic Models
• To help us make economic decisions, we will
use economic models
– Ex. Charts, graphs
Types of Cost
I. Economic Decision-Making
• Every decision made has some type
of cost or consequence
II. Choices
• Trade-off: the alternative you face if you
decide to do one thing rather than another
• Ex. You can go to the movies or study for
your economics test
• Opportunity Cost: the cost of the next best
alternative use of time and money when
choosing to do one thing rather than another
• Go to the movies—do poorly on your
test, fail the EOC
• Study for the test—miss the fun with
your friends
III. Other Types of Cost
• Fixed costs: Expenses that are the same no
matter how much or how little you produce
• Ex. Mortgage payments, property taxes
• Variable costs: Expenses that change when
the # of items produced changes
• Ex. Salaries, materials, light bills
• Total Costs: fixed costs and variable costs
added together
• Fixed + Variable = Total
Class Starter
1. Who is responsible for paying the cost of
incarcerating criminals?
2. Which set of laws simplified Roman Laws?
3. List some examples of civic duties.
4. Which amendment contains the Equal
Protection Clause?
Factors of Production
I. Producing Goods and Services
• We produce goods and services for people to
buy
– Goods: tangible products that we use to satisfy
our wants and needs
– Services: work performed by a person for
someone else
• Gross Domestic Product (GDP): the total $
value of all final goods and services produced
in a country during a single year
II. Factors of Production
• Resources necessary to produce goods and
services
• Land, labor, capital, entrepreneurship
• Land (natural resources): things we find in
nature that make production possible
– Ex. Trees, animals, water, air
• Labor: human effort directed toward
producing goods and services
– Ex. Doctors, lawyers, teachers,
plumbers, cashiers
• Capital: previously manufactured goods used
to make other goods and services
– Ex. Sewing machines, projectors, pens,
hammers, $
• Entrepreneurship: the ability to start a new
business
– Entrepreneur—someone who starts a
business; person has to be innovative
and willing to take risks to make the
profit