Economics: Chapter 1 Overview
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Chapter 1
What is Economics?
What is Economics?
Economics is about how people choose to use
scarce
resources to satisfy their needs and wants i.e. achieve goals
Needs vs. Wants
Needs
Wants
Something like air, food or
shelter that is necessary for
survival
An item we desire but that
is not essential to survival
Needs vs. Wants
Are these
needs or
wants?
Needs vs. Wants
Are these needs or wants?
Goods
The products created on Aquarius Island are
goods
. Goods
are physical objects such as clothes or shoes.
Services
Services
are actions that one person performs for another
All Resources are Scarce
All resources, especially on Aquarius Island are scarce.
Scarcity
is limited resources to meet unlimited wants.
Scarcity vs. Shortage
A
shortage
is a situation in
which a good or service is
unavailable. Sometimes a
producer cannot or will
not offer a good or service.
Shortages are temporary
Goods are scarce because
resources are scarce. On
your island, you did not
have unlimited papaya
because papaya is scarce.
Scarcity
Our resources are insufficient to achieve all our goals and all
or wants
We cannot have everything we want
Using economic reasoning, i.e. making choices, we can get
more from our resources
Factors of Production
Factors of
production
are
the resources
used to make
goods and
services (land,
labor, capital,
entrepreneur)
Factors of Production
Land
is all natural resources used to make goods and services
(land, coal, water, wood, etc.)
Factors of Production
Labor
is the effort people
devote to a task for which
they are paid
Factors of Production
Capital
is any human made resource that is used to
produce other goods and services
Factors of Production
Physical Capital
Human Capital
Human made objects that
create goods or services
(buildings, tools,
factories.) These things
make us more productive
The knowledge or skills a
worker gains through
education and experience
Factors of Production
Entrepreneurship
combines all resources to produce a new
good or service
Factors of Production
Entrepreneur's
are ambitious
leaders who
combines land
and capital to
create and
market new
goods and
services
Guns or Butter
Guns or Butter- If a country decides to produce more
military goods (guns) then they will have fewer resources to
devote to consumer goods ex. Health care, education
(butter)
•
•
vs
Trade-offs vs. Opportunity Costs
Trade-Offs
Opportunity Costs
Are an alternative we
sacrifice when we make a
decision
Individual trade-offs: Work
more, play less
Business trade-offs:
Produce more coconuts
rather than papaya
Is the most desirable
alternative given up as the
result of a decision
Ex. You choose to make a
life on Aquarius Island
rather than try and escape
Thinking at the Margin
Thinking at the
margin
means
deciding how
much more or
less to do.
Usually we don’t
stay up all night
to build shelter.
We build part of
it one day and
build part of it
the next day, that
way you can still
sleep
Cost and Benefit at the Margin
With cost and benefit at the margin, you have to look at how
decisions affect how much you spend and how much you gain
When you sacrifice more than you gain, no more units should be
added
Efficiency and Productivity
Remember, the goal of an economy is to be efficient.
Efficiency
is when an economy uses it’s resources in such a
way as to maximize the production of goods and services.
Efficiency means increasing productivity!
Production Possibilities
Economists often use graphs to help show data.
A
Production Possibilities Curve
shows alternative ways to
use an economy’s productive resources.
The
Production Possibilities Frontier
is a line on the graph
that shows the maximum possible output. Each point on the
graph represents a trade off.
Production Possibilities
Using few
resources than an
economy is capable
of using is
underutilization
Production Possibilities
For every choice we make, there is a
cost
.
Law of Increasing Costs
states that as we shift factors of
production from making one good or service to another, the
cost of producing the second item increases.
Economics is the study of how individuals make choices to allocate scarce resources to meet their needs and wants. It distinguishes between needs and wants, goods and services, scarcity and shortages, and factors of production like land, labor, capital, and entrepreneurship. The concept of scarcity underlines the fundamental challenge of limited resources and unlimited desires. By understanding economic principles, individuals can optimize resource allocation.
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Presentation Transcript
What is Economics? Chapter 1
What is Economics? Economics is about how people choose to use scarce resources to satisfy their needs and wants i.e. achieve goals
Needs vs. Wants Needs Needs Wants Wants Something like air, food or shelter that is necessary for survival An item we desire but that is not essential to survival
Needs vs. Wants Are these needs or wants?
Needs vs. Wants Are these needs or wants?
Goods The products created on Aquarius Island are goods. Goods are physical objects such as clothes or shoes.
Services Services are actions that one person performs for another
All Resources are Scarce All resources, especially on Aquarius Island are scarce. Scarcity is limited resources to meet unlimited wants.
Scarcity vs. Shortage A shortage is a situation in which a good or service is unavailable. Sometimes a producer cannot or will not offer a good or service. Goods are scarce because resources are scarce. On your island, you did not have unlimited papaya because papaya is scarce. Shortages are temporary
Scarcity Our resources are insufficient to achieve all our goals and all or wants We cannot have everything we want Using economic reasoning, i.e. making choices, we can get more from our resources
Factors of Production Factors of production are the resources used to make goods and services (land, labor, capital, entrepreneur)
Factors of Production Land is all natural resources used to make goods and services (land, coal, water, wood, etc.)
Factors of Production Labor is the effort people devote to a task for which they are paid
Factors of Production Capital is any human made resource that is used to produce other goods and services
Factors of Production Physical Capital Physical Capital Human Capital Human Capital Human made objects that create goods or services (buildings, tools, factories.) These things make us more productive The knowledge or skills a worker gains through education and experience
Factors of Production Entrepreneurship combines all resources to produce a new good or service
Factors of Production Entrepreneur's are ambitious leaders who combines land and capital to create and market new goods and services
Guns or Butter Guns or Butter- If a country decides to produce more military goods (guns) then they will have fewer resources to devote to consumer goods ex. Health care, education (butter) vs
Trade-offs vs. Opportunity Costs Trade Trade- -Offs Offs Opportunity Costs Opportunity Costs Are an alternative we sacrifice when we make a decision Individual trade-offs: Work more, play less Business trade-offs: Produce more coconuts rather than papaya Is the most desirable alternative given up as the result of a decision Ex. You choose to make a life on Aquarius Island rather than try and escape
Thinking at the Margin Thinking at the margin means deciding how much more or less to do. Usually we don t stay up all night to build shelter. We build part of it one day and build part of it the next day, that way you can still sleep
Cost and Benefit at the Margin With cost and benefit at the margin, you have to look at how decisions affect how much you spend and how much you gain When you sacrifice more than you gain, no more units should be added
Efficiency and Productivity Remember, the goal of an economy is to be efficient. Efficiency is when an economy uses it s resources in such a way as to maximize the production of goods and services. Efficiency means increasing productivity!
Production Possibilities Economists often use graphs to help show data. A Production Possibilities Curve shows alternative ways to use an economy s productive resources. The Production Possibilities Frontier is a line on the graph that shows the maximum possible output. Each point on the graph represents a trade off.
Production Possibilities Using few resources than an economy is capable of using is underutilization
Production Possibilities For every choice we make, there is a cost. Law of Increasing Costs states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases.
