Introduction to Economics
Chapter 1, section 1 Powerpoint Chapter 1
SCARCITY AND THE FACTORS OF PRODUCTION
Economics is the study of how people choose from limited resources to meet their needs and wants. People always have to make decisions about how to meet their needs and wants.
A need is something people must have to survive, like air, food, and shelter.
A want is something that people would like to have but is not necessary for survival.
People have to make such choices because of scarcity, the limited amounts of resources to meet unlimited desires. Goods are objects, like cars and clothes. Services are actions that people do for others, such as teaching.
A shortage occurs when a good or service is unavailable.
Shortages occur when people have trouble supplying goods and services at current prices.
Shortages may occur because of situations like war or drought. They may end quickly or last a long time.
(to use the above link, you will need to create an account for the online stock market simulation, go ahead and join. You may be on your way to becoming a great investor).
Stephanie and Alex - Join this and start buying some stocks. Mr. Lewis and Mr. Naclario should also play.
Economists call the resources used to make goods and services factors of production. There are three types: land, labor, and capital. Land includes natural resources like coal, water, and forests. Labor is work for which people receive pay. Capital is a human-made resource used to produce other goods and services. Objects made by people, like buildings and tools, are called physical capital.
Human capital refers to the knowledge and skills people gain from study and experience.
Entrepreneurs are people who put together land, labor, and capital to create new businesses.
When people make choices, they must give up something. The most desirable choice they give up is called the opportunity cost.
When making decisions people face trade-offs, or alternatives we give up when we choose one course of action over another. Individuals, businesses, and governments all face trade-offs. A person who chooses to spend more time at work has less time to spend at home. A business that uses all its factories to build chairs cannot build tables at the same time. A country that decides to produce more military goods has fewer resources to use for consumer goods. Economists use the term guns or butter to describe this trade-off.
A person who chooses one alternative gives up other alternatives. The most desirable alternative given up is called the opportunity cost. For example, suppose you have to choose between sleeping late or getting up early to study for a test. The opportunity cost of extra study time is less sleep. The opportunity cost of more sleep is less study time.
Decisions also involve thinking at the margin. This means deciding about adding or subtracting one unit of a resource, such as one hour of sleep. In the example above, the decision was between sleeping late or studying. But you could also choose to sleep an hour late, then wake up to study. To make a decision at the margin, you would compare the opportunity cost and benefit of each extra hour of studying.
1-3Producers make decisions about how to use resources.
Production possibilities graphs can be used to examine the opportunity costs of these decisions.
Economists use graphs that are called production possibilities graphs to show alternative ways of using a country’s resources. For example, an economist might want to examine the production of shoes and watermelons. A production possibilities graph can show how the number of shoes produced is affected by the number of watermelons grown. As the number of watermelons produced is increased the number of shoes produced will decrease. This happens because land is scarce, and more land for watermelon farms means less land for shoe factories. Similarly, as more shoes are produced less resources are available to grow watermelons. Efficiency means an economy is using resources in such a way as to maximize the production of goods and services. In the above example, efficiency would mean that the most watermelons and shoes possible are being produced. The line on the graph that shows the maximum possible production is called the production possibilities frontier. If factory workers and farmers lost their jobs, less shoes and watermelons would be produced. In this case the economy would suffer from underutilization, or using fewer resources than it is capable of using. A country’s resources are always changing. In the future, resources may increase, causing the economy to grow. If more labor becomes available, there will be more workers to produce more goods. Improvements in technology, or know-how, will also help the economy grow. This growth can be shown by a shift to the right on the production possibilities frontier.
A trade off is giving up one alternative for another.