Bellringer Grab a textbook and:

1) write down the new vocabulary words for Chapter 2 and their definitions.

2) pick one word to explain to our classmates

Economic Decision Making

Chapter 2

The fundamental economic problem facing all societies is Scarcity.

Scarcity is the condition that results in society not having enough resources to produce all the things people would like to have.

The Main Problem

Even goods and services are scarce, because the resources we need to produce them are scarce

Needs and Wants A NEED is a basic

requirement for survival!!!◦Food◦Water◦Shelter etc.

A WANT is a way of expressing a need

WANTS satisfy needs WANTS are broader

than NEEDS

Shortages are Temporary, while Scarcity is forever

Shortage Scarcity

Lack of something that is desired

Less of a good or service available than what people are willing to pay at the current price

Shortage lasts until more produced or desire ends

Simply not enough of everything to satisfy all of our wants

Permanent condition

Scarcity and Shortage Handout/Activity

By inputs, outputs and the production equation

Inputs = scarce resources that go into the process

Outputs = goods and services produced by these resources

Production Equation = Land + labor + Capital = Goods and Services *Entrepreneurship?

How Do We Satisfy Economic Wants?

Unlimited WantsLimited

Resources

SCARCITY

CHOICES

WHATTo Produce

HOWTo Produce

FOR WHOMTo Produce

Land◦ “Gifts of Nature”◦ Natural resources not created by human effort

◦ Examples: Deserts Fertile fields Forests Animals, birds Sunshine Climate

◦ Includes both renewable and nonrenewable resources

The Factors of Production

Labor◦ The time and effort people devote to producing

goods and services in exchange for wages◦ Includes both physical and mental labor◦ Human capital = knowledge and skill gained from

education or training◦ Strong correlation between country’s level of

human capital and standard of living

The Factors of Production

Capital◦ Physical capital or capital goods = Tools,

equipment, factories or buildings used in production of goods and services

◦ Financial Capital = money to invest in stocks, bonds, real estate, or businesses to produce future wealth

The Factors of Production

Production Equation

Land

Labor

Capital

Goods & Services

Entrepreneurs◦ Some economists consider Entrepreneurship the

4th factor of production◦ A risk-taker in search of profits◦ Innovative workers who are responsible for

economic change Start new businesses Create new products Innovative use of resources

The 4th Factor of Production?

When the four factors of production (land, capital, labor, entrepreneurship) are present, PRODUCTION, or the process of creating goods and services, can take place

IMPORTANT!!! – Everything we produce requires all four factors

PRODUCTION

Look at the Pictures Below, What Factors Do You See?

Four Factors of Production Handout

Factors of production “I, Pencil” https://

www.youtube.com/watch?v=IYO3tOqDISE

Scarcity, Choices, and Exchange Anyone like Star Wars?

http://www.youtube.com/watch?v=Np-dZSdzymk

EconMovies!