The Fundamental Economic
Problem
Unit 5, Day 1
Opener 9/13/16
• Copy the definitions
• Economics-the study of how we make
decisions in a world where resources
are limited.
• Scarcity - we do not have enough resources to
produce all the things we would like to have.
• Economic models. -simplified representations
of the real world, based on economic theories.
Economic Choices
• Economics is the study of how
we make decisions in a world
where resources
are limited.
• It is sometimes called the science
of decision making.
• Needs are things we need for
survival, such as food, clothing,
and shelter.
• Wants are things we would like
to have.
Economic Choices
Individually, create a list on the bottom of your
notes that reflects the two following statements:
Things I need to live include:
Things I want include:
Economic Choices
• The fundamental economic problem
is scarcity–we do not have enough resources to
produce all the things we would like to have.
• Because of scarcity, we must make choices among
alternatives.
Economic Choices
• Analyze the above cartoon illustrated by Jerry
Scott and Jim Borgman in 1998.
• Finally, include a reflection on the following:
Luxuries such as concert tickets often become
necessities in the eyes of consumers. How do
consumers satisfy their seemingly unlimited
wants?
Economic Choices
There are three basic economic questions that a
society must answer:
• Society must decide what to produce with its
limited resources.
• For example, society may have to choose
whether to produce goods for defense or services
for poor people.
• Society must decide how to produce.
• For example, should we accept more pollution
from factories in exchange for greater output of
products?
Economic Choices
• Society must decide for
whom to produce.
• Who will receive the
goods and services?
• In the United States,
most goods and services
are distributed through
the
price system.
Using Economic Models
• The economy includes all the activity
in a nation that together affects the
production, distribution, and use of goods and
services.
Production
Distribution
Consumption
Using Economic Models
• To study a part of the economy, economists
use economic models.
• These are simplified representations
of the real world, based on economic theories.
• Business and government often base decisions
on solutions that emerge from testing
economic models.
Using Economic Models
• Models are based on assumptions.
• The quality of the model’s results can be no
better than the assumptions on which it is
based.
• Economists use models to better understand
the past or present and to predict the future.
• If predictions based on a model turn out to be
wrong, economists revise the model.
Exit Slip
• Using complete sentences address the
following prompt (5-7 sentences):
What would life be like if no economic scarcity
existed?