Don’t copy links, Do copy charts and graphs.
Chapter 1 Section1
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WANT – VS – NEED
TINSTAAFL = There is no such thing as a free lunch
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Because of scarcity we have to make careful choices about the way we use these resources. We must
answer 3 main questions
1. What to produce
2. How to produce
3. For whom to produce
What = a society cannot have everything its people want, so it must decide WHAT to produce.
Military equipment, food, clothing or housing
How = do we use automated machines or workers? Which way is cheaper to produce goods?
For Whom = Who will receive these things.
Houses, do you build low income, middle income, or high income homes.
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Factors of Production = resources required to produce the things we would like to have. There are 4 of
them. Land, Capital, Labor, Entrepreneur.
Land = gifts of nature or natural resources. Not created by people.
Ex. Deserts, fertile fields, forests, livestock, sunshine. Fixed or in limited supply
Capital = (capital goods), the tools equipment, machinery and facilities used in production of goods and
services.
Ex. Bulldozer, class computers, factory building
Labor = people with all their efforts, abilities and skills. Does not include entrepreneurs.
Ex. Factory workers
Famine, war, immigration, birthrates and disease all affect labor
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Entrepreneurs = is a risk taker in search of profits who does something new with existing resources.
These people tend to be the driving force of economy.
Larry Page
https://en.wikipedia.org/wiki/Sergey_Brin
https://en.wikipedia.org/wiki/Jeff_Bezos
https://en.wikipedia.org/wiki/Sam_Walton
https://en.wikipedia.org/wiki/Walton_family
Production = everything we make requires the four factors of production.
The Scope of Economics
Economics is a social science because it deals with the behavior of people as they deal scare resources.
There are 4 key elements to this study description, analysis, explanation and prediction.
Description = allows us to know what the world looks like.
GDP or Gross Domestic Product = the dollar value of all final goods, services, and structures
produced within a country’s borders in a 12 month period. A key measure of a nation’s
economic wealth.
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Analysis = is important because it helps is discover why things work and how things happen.
Ex. Why people earn more money? Why things higher are priced than others?
Explanation = after economists analyze a problem and understand why and how things work,
they need to communicate this knowledge to others.
Prediction = because economics is the study of both what is happening and what tends to happen, it can
help predict the future, including the most likely effects of different action
Chapter 1 Section 2
Goods, Services, and Consumers
Goods
Good = a useful, tangible item, such as a book, car, or CD player, that satisfies a want.
Capital good = manufactured goods that are used to produce other goods.
Ex. Robot welder in a factory.
Consumer goods = goods intended for final use by individuals
Durable good = any good that lasts 3 years or more when used on a regular basis.
Capital goods and consumer goods are included as durable goods.
Nondurable goods = an item that lasts fewer than 3 years when used on a regular basis.
Services
Service = work that is performed for someone.
Ex. Haircuts, forms of entertainment, doctors, lawyers, teachers
Goods are tangible and services cannot be touched.
Consumers
Consumers = are the people who use goods and services to satisfy their wants and needs.
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Value, Utility, and Wealth
Value = in economics value refers to a worth that can be expressed in dollars and cents. To have
monetary value, economists decided something must be scarce and have utility.
Paradox of value = the contradiction between the high monetary value of a nonessential item
and the low value of an essential item. Developed by Adam Smith in 1776
Utility
For something to have value, it must also have utility, or the capacity to be useful and provide
satisfaction. Utility of a good or service may vary from one person to the next.
Wealth
In economic sense, the accumulation of products that are tangible, scare, useful, and
transferable from one person to another is wealth. A nations wealth is comprised of all tangible
items.
Services are not counted as wealth.
The Circular flow of Economic Activity
Market = a location or other mechanism that allows buyers and sellers to exchange specific product.
Markets may be local, national or global. Cyberspace is also a market.
Factor Markets = this is where the factors of production are bought and sold.
Product Market = are markets where producers sell their goods and services. Businesses then use this
money to produce more goods and services
Productivity and Economic Growth
Economic Growth = This occurs when a nation’s total output of goods and services increases
overtime.
Productivity = a measure of the amount of goods and services produced with a given amount of
resources in a specific period of time.
Investing in human Capital
Human Capital = the sum of people s skills, abilities, health, knowledge, and motivation.
Businesses invest in training and other programs that improve the skills of their workers.
Division of Labor = is a way of organizing work s that each individual worker completes a
separate part of the work.
Specialization = takes place when factors of production perform only tasks they can do better or
more efficiently than others. The division of labor makes specialization possible.
Economic Interdependence = this means that we rely on others and others rely on us, to provide
most of the goods and services that we consume.
Homework
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#’s 5 – 8
Questions and Answers.
Chapter 1 Section 3
Economic Choices and Decision Making
Trade-offs and opportunity Cost
Every decision that we make has its trade-offs or alternative choices.
Opportunity Cost
People often think of cost in terms of $$$ and cents. Economists think broadly in terms of opportunity
cost, the cost of the next best alternative. Opportunity cost = Opportunity Lost.
Production Possibilities
To illustrate opportunity cost, economists use the production possibility curve, a diagram representing
various combinations of goods and services an economy can produce when all its resources are in use.
A,B,C represent maximum combinations of output that are possible if all resources are fully employed.
Point “X” can be reached but you will have idle resources. Point “Y” can not be reached because there
aren’t enough resources.
Opportunity Cost Curve
Economic Growth Curve
The population may grow, the stock capital may expand, technology may improve, or productivity may
increase. If any of these changes occur, then “A” or Alpha will be able to produce more in the future.
Thinking like an Economist
Because economists study how people satisfy seemingly unlimited and competing wants through the
careful use of scarce resources, they are concerned with strategies that will help people make the best
choices.
Build a simple model. An economic model is a simplified equation, graph, or figure shoe=wing how
something works. Simple models can often reduce complex situations to their most basic elements. It is
important to realize that models are based on assumptions, or things we think are true. Most economic
decisions can be evaluated with cost-benefit analysis, a way of comparing the costs of an action to the
benefits received.