What is Economics?
“Scarcity and Factors of
Choices and Decision Making:
• The study of economic begins with the idea
that people cannot have everything they need
• Need: Anything that is necessary for survival.
• Want: Something we desire, but is not
essential to our survival.
What is Economics?
• Economics: The study of how people satisfy
their wants and needs by making choices.
• People must make choices due to scarcity.
• Scarcity: limited quantities of resources, and
unlimited wants. (think of oil)
-no matter what it is, sooner or later a limit is
-scarcity always exist because our needs and
wants are always greater then our supply.
Scarcity vs. Shortage:
• Shortages: Shortages occur when producers
will not or cannot offer goods and services at
• Shortages can be temporary or long-term
(unlike scarcity, which always exists.)
Goods and Services:
• Many Americans find it difficult to understand
the idea of scarcity, because when they look
around they see goods and services all around
• Good: a physical object. (shoes, shirt)
• Service: actions or activities that one person
performs for another. (haircut, tutoring)
Factors of Production:
• These are the resources that are used to
produce goods and services.
• Land- all natural resources.
• Labor- Task completed by a person who is
• Capital- any human made resource that is
used to produce other goods and services.
There are 2 different types of capital.
• Physical capital: human made objects used to
create goods and services. (Tools)
• Human capital: Knowledge and skills a worker
gains through education and experience.
(lawyer = education, McDonald’s worker =
experience or job training)
• Entrepreneurs: These are the people who pull
resources together in order to create goods and
• Ambitious leaders, usually risk takers, who decide
exactly how to combine land, labor, and capital
resources to create new goods and services.
• Develop original ideas, start businesses, and
create new industries.
• Most importantly, entrepreneurs fuel economic
1. Tell me what business you are going to start,
and why you decided on starting that
2. Need or Want?
3. Good or Service?
4. Human and Physical Capital?
• 1. What is the difference between a shortage
• 2. What is the difference between a need and
• 3. What are the 3 factors of production?
4.If you hadn’t come to school today, what
would you be doing instead?
(Make a list of at least 3 things.)
• Every decision we make in life involves
choosing one thing, while giving up another.
• Trade-offs: Trade-offs are all of the
alternatives we give up when we choose one
thing over another.
• All decisions involve trade-offs because
resources are limited. (scarcity)
Who Makes Trade-Offs?:
• Individuals- more time at work, less time for
• Businesses- must make decisions on how to
use land, labor, and capital.
• Society (Countries)- if a country invest more
money in one thing, it has less money to
spend on another. (guns or butter decision)
• Opportunity Cost: The most desirable thing
given up in a decision.
• Sometimes making a decision is difficult
because opportunity cost may be unclear or
complicated. (Decision Making Grid)
Decision Making Grid
Sleep Late Wake Up Early to Study
Benefits: •-Enjoy more sleep •-Better grade on test.
•-Have more energy •-Teacher and parental
during the day approval.
Decision: Sleep Late Wake up early to study for
Opportunity Cost: •Extra study time. •Extra sleep time.
Benefits Lost: •-Better grade on test •-Enjoy more sleep.
•-Teacher/parental •-Have more energy during
approval. the day
Thinking at the Margin:
• Thinking at the Margin: When you decide
how much more or less to do, you are thinking
at the margin.
(Decision: study 1, 2, or 3 hours extra for a test.)
Making a Decision at the Margin:
• Making a decision at the Margin: When you
look at the opportunity cost and the benefit of
a decision, you are making a decision at the
margin. (Decision: Study 1, 2, or 3 hours extra
• Opportunity Cost: Less time to spend with
• Benefit: Passing the test
• On lined paper, tell me about an important
decision you have made in your life.
• 1. Tell me in great detail about the decision
• 2. Tell me some of the trade-offs of your
• 3. Tell me the opportunity cost
• 4. Was it worth it?
• 1. What does the “Guns and Butter Decision”
refer to ?
• 2. What is the difference between trade-offs
and opportunity cost?
• 3. What is the difference between scarcity and
Production Possibilities Graph:
• -Economist often use graphs to analyze the
choices and trade-offs that people make
• -Why? Because graphs help us see how one
value relates to another.
• -Production possibility graph: Shows the
alternative ways to use an economy’s
15_ - Underutilization
Shifts in the Production Possibility Curve:
What the Graph Shows:
• 1. Efficiency- using resources in such a way as
to maximize the production or output of
goods and services.
• 2. Growth-Increases in technology will cause
output to increase.
• 3. Cost-The opportunity cost of producing one
good over another.
Law of Increasing Cost:
• Law of increasing cost: As production
switches from one item to another, more and
more resources are necessary to increase
production of the second item.