Chapter 1Economics Honors

› Scarcity forces us all to make economic decisions› Economics deals with the fact that we cannot have

everything we need and want

› Need- Essential for survival– Food, medical care, etc

› Want- Something we desire but that is not necessary for survival

› These are satisfied with goods and services

Section 1: Scarcity

› Goods- physical objects that someone produces– food, clothing, etc.

› Services- actions or activities that one person performs for another– Medical care, education, etc.

› Needs and wants are unlimited› Goods and services are limited

Section 1: Scarcity

› Scarcity- the fact that limited amounts of goods and services are available to meet unlimited wants– Forces people to make choices

› Time› Money

› Economics- the study of how people seek to satisfy their needs and wants by making choices– Individually– Groups– governments

Section 1: Scarcity

› Scarcity is not the same things as shortage› Shortage- when consumers want more of a good of

service than producers are willing to make available at a particular price– May be temporary or long term

› Scarcity always exists

Section 1: Scarcity

› Entrepreneurs- people who decide how to combine resources to create new goods and services– Anyone who opens a business – Willing to take risks for potential profit– Fuel economic growth

Section 1: Scarcity

› Factors of Production– Resources used to make all goods and services

› Land- all natural resources› Labor- effort people devote to tasks for which they are paid› Capital- any human-made resource that is used to produce other

good and services– Physical capital- human-made objects used to create other good and

services (capital goods) – Human capital- the knowledge and skills a worker gains through

education and experience

Section 1: Scarcity

› All goods and services are scarce because the resources used to produce them are scare

› All factors of production used to produce goods and services are scarce

› Individuals, businesses, and governments have to choose which alternative they most want

Section 1: Scarcity

› Every time we choose to do something, we give up the opportunity to do something else– Scarcity forces us to make choices among limited

resources

Section 2: Opportunity Cost & Trade-Offs

› Trade-Off- the act of giving up one benefit in order to gain another, greater benefit

› Opportunity cost- the most desirable alternative somebody gives up as a result of their decision– When we select on alternative, we must sacrifice at least

one other alternative and its benefits

Section 2: Opportunity Cost & Trade-Offs

› Thinking at the margin- when you decide how much more or less to do

› Cost/benefit analysis- the decision-making process- comparing the opportunity costs and the benefits

Section 2: Opportunity Cost & Trade-Offs

› Marginal costs- the extra cost of adding one unit› Marginal benefit- the extra benefit of adding the

same unit› As long as the marginal benefit outweighs the

marginal costs- it is a rational decision

Section 2: Opportunity Cost & Trade-Offs