Learning Objectives:

The Economic Problem

LO1: Understand the relevance of economics

LO2: Define economics, microeconomics, and macroeconomics and understand the importance of the scientific method

LO3: Realize that scarcity, choice, and opportunity cost are at the heart of economics and that efficiency is a cornerstone

CHAPTER 1

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Scarcity and Choice

Resources are Scarce: – Resources, or “factors of production”, are

anything used to produce goods and services

– Do not have enough resources to produce everything everybody wants

–Must have some way to ration scarce resources

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LO3

Economic Resources

Labour - Human mental and physical effort

Land – Any natural resource used to produce goods or services

Capital – Tools, equipment, factories, and buildings used in production process

Enterprise – The human resource that innovates and takes risks

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LO3

Economic Resources

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RESOURCE: EARNS:

Labour Wages

Land Rent

Capital Interest

Enterprise Profit

LO3

Self-Test

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Indicate whether the resource in question is labour (L), capital (K), land (N), or enterprise (E):

a. A bar-code scanner in a supermarket b. Fresh drinking water c. Copper deposits in a mine d. The work of a systems analyste. The first application of e- technology to an

economics textbookf. An office building

LO3

Economic Resources

Technology - Method of production - Way in which resources are combined to produce

goods and services

Opportunity Cost - The value of the next-best alternative that is given

up as a result of making a particular choice

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LO3