Economics and Decision Making: Understanding Scarcity and Choices

1. Chapter 1 What Is Economics? Splash Screen

2. CHAPTER INTRODUCTION SECTION 1Scarcity and the Scienceof Economics SECTION 2Basic Economic Concepts SECTION 3Economic Choices andDecision Making CHAPTER SUMMARY CHAPTER ASSESSMENT Click a hyperlink to go to the corresponding section.Press the ESC key at any time to exit the presentation. Contents

3. Economics and You The study of economics will help you become a better decision maker–it helps you develop a way of thinking about how to make the best choices for you. Click the Speaker button to listen to Economics and You. Chapter Introduction 1

4. Chapter Objectives Section 1: Scarcity and the Science of Economics • Explain the fundamental economic problem.  • Examine the three basic economic questions every society must decide. Click the mouse button or press the Space Bar to display the information. Chapter Introduction 2

5. Chapter Objectives Section 2: Basic Economic Concepts • Explain the relationship among scarcity, value, utility, and wealth.  • Understand the circular flow of economic activity. Click the mouse button or press the Space Bar to display the information. Chapter Introduction 3

6. Chapter Objectives Section 3: Economic Choices and Decision Making • Analyze trade-offs and opportunity costs.  • Explain decision-making strategies. Click the mouse button or press the Space Bar to display the information. Chapter Introduction 4

7. Click the mouse button to return to the Contents slide. End of Chapter Introduction

8. Study Guide Main Idea Scarcity forces us to make choices. We can’t have everything we want, so we are forced to choose what we want most.  Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 5 of your textbook. Section 1-1

9. Study Guide (cont.) Key Terms • scarcity  • labor  • entrepreneur  • production  • Gross Domestic Product (GDP) • economics  • need  • want  • factors of production  • land  • capital  • financial capital  Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 5 of your textbook. Section 1-2

10. Study Guide (cont.) Objectives After studying this section, you will be able to:  • Explain the fundamental economic problem.  • Examine the three basic economic questions every society must decide.  Applying Economic Concepts Scarcity  Why is scarcity the basic economic problem that everyone faces? Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 5 of your textbook. Section 1-3

11. Introduction • Do you think the study of economics is worth your time and effort?  Click the mouse button or press the Space Bar to display the information. Section 1-4

12. Did You Know? • We witness scarcity with each year’s “hot” new toy. Inspired by hunter President Teddy Roosevelt, Americans coveted the teddy bear in 1906. Cabbage Patch dolls were big during the 1980s, as were Tickle Me Elmos in 1996. By 1999 Game Boy’s Pokémon was the rage with a 10-cent trading card. The most-prized first-edition pocket monsters were in such short supply that they commanded from $8 to $182. Click the mouse button or press the Space Bar to display the information. Section 1-4

13. The Fundamental Economic Problem • Scarcity is the condition where unlimited human wants face limited resources.  • Economics is the study of how people satisfy wants with scarce resources.  • Needs are required for survival; wants are desired for satisfaction.  • Someone has to pay for production costs, so There Is No Such Thing As A Free Lunch (TINSTAAFL). Click the mouse button or press the Space Bar to display the information. Section 1-5

14. Discussion Question Why do you think scarcity is an issue with the rich as well as the poor? It is a human trait that few people, regardless of their economic status, are satisfied with what they have. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

15. Three Basic Questions • What must we produce? Society must choose based on its need.  • How should we produce it? Society must choose based on its resources.  Figure 1.1 • For whom should we produce? Society must choose based on its population and other available markets. Click the mouse button or press the Space Bar to display the information. Section 1-9

16. Discussion Question How might the economic decisions of a mountainous island society differ from those of a mountainous landlocked society? An island society has water resources to consider and likely a more limited population. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

17. The Factors of Production • Factors of production are resources necessary to produce what people want or need.  • Land is the society’s limited natural resources—landforms, minerals, vegetation, animal life, and climate. • Capital is the means by which something is produced such as money, tools, equipment, machinery, and factories. Click the mouse button or press the Space Bar to display the information. Section 1-13

18. The Factors of Production (cont.) • Labor is the workers who apply their efforts, abilities, and skills to production.  • Entrepreneurs are risk-takers who combine the land, labor, and capital into new products.  • Production is creating goods and services—the result of land, capital, labor, and entrepreneurs. Click the mouse button or press the Space Bar to display the information. Section 1-13

19. The Factors of Production (cont.) Click the mouse button or press the Space Bar to display the information. Section 1-14

20. Discussion Question Why are entrepreneurs an economy’s driving force? Their abilities to start new businesses and introduce new products may re-energize a sluggish economy or strengthen a successful economy. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

21. The Scope of Economics • Economics deals with the description of economic activity—Gross Domestic Product, unemployment rate, government spending, tax rates, etc. • Analysis looks at the “why” and “how” of economic activity—why prices go up and down, for example, or how taxes affect savings. Click the mouse button or press the Space Bar to display the information. Section 1-20

22. The Scope of Economics (cont.) • Explanation refers to how economists communicate knowledge of the economy and its activities to the society’s population.  • Prediction refers to how yesterday’s and today’s economic activities advise us of potential future activity. Click the mouse button or press the Space Bar to display the information. Section 1-20

23. Discussion Question What makes economics a social science? Economics is a study of human behavior because it looks at the decisions people make and how they react to those decisions. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

24. Section Assessment Main Idea Using your notes from the graphic organizer activity on page 5, explain why a society must face the choices about WHAT, HOW, and FOR WHOM to produce. Choices must be made as long as wants are greater than the resources available. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

25. Section Assessment (cont.) Describe the fundamental economic problem. Scarcity, the condition that results from society not having enough resources to produce all the things people want, is the fundamental economic problem. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 2

26. Section Assessment (cont.) List the three basic economic questions every society must answer. Every society must ask what to produce, how to produce, and for whom to produce. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 3

27. Section Assessment (cont.) Describe the factors of production. The factors of production are land, capital, labor, and entrepreneurs. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 4

28. Section Assessment (cont.) List the four key elements of economics. The four key elements of economics are description, analysis, explanation, and prediction. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 5

29. Section Assessment (cont.) Synthesizing Information Give an example of a supposedly “free” item that you see every day. Explain why the item is not really free by stating who or what actually pays for it. Section 1-Assessment 7

30. Section Close How might the element of prediction in economics be important in your lives? Section 1-Assessment 8

31. Click the mouse button to return to the Contents slide. End of Section 1

32. Study Guide Main Idea An economic product is a good or service that is useful, relatively scarce, and exchangeable.  Reading Strategy Graphic Organizer As you read the section, describe three different transactions that could take place in the product market. Use a web like the one on page 12 of your textbook to help you organize your answer. Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 12 of your textbook. Section 2-1

33. Study Guide (cont.) Key Terms • market  • factor market  • product market  • economic growth  • productivity  • division of labor  • specialization  • human capital  • economic interdependence • economic product  • good  • consumer good  • capital good  • service  • value  • paradox of value  • utility  • wealth  Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 12 of your textbook. Section 2-2

34. Study Guide (cont.) Objectives After studying this section, you will be able to:  • Explain the relationship among scarcity, value, utility, and wealth.  • Understand the circular flow of economic activity.  Applying Economic Concepts Specialization  How does specialization increase production? Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 12 of your textbook. Section 2-3

35. Introduction • Economics, like any other social science, has its own vocabulary.  • To understand economics, a review of some key terms is necessary.  • Fortunately, most economic terms are widely used, and many will already be familiar to you. Click the mouse button or press the Space Bar to display the information. Section 2-4

36. Did You Know? • The 20 percent of the world’s people who live in the wealthiest nations consume 86 percent of the world’s goods and services. The 20 percent who live in the poorest nations consume just 1.3 percent. Click the mouse button or press the Space Bar to display the information. Section 2-4

37. Goods, Services, and Consumers • Goods are items that are economically useful or satisfy an economic want. They are tangible and can be classified as consumer/capital and durable/ nondurable.  • Services are work performed for someone and are intangible.  • Consumers use goods and services to satisfy wants and needs. Click the mouse button or press the Space Bar to display the information. Section 2-5

38. Discussion Question Why do you think the United States has been called a “society of consumption”? Answers will vary. Students should support their opinions with examples. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 1

39. Value, Utility, and Wealth • Value is worth expressed in dollars and cents. Scarcity by itself is not enough to create value. For something to have value, it must also have utility.  • Utility is a good’s or service’s capacity to provide satisfaction, which varies with the needs and wants of each person.  • Wealth is the accumulation of goods that are tangible, scarce, useful, and transferable to another person. Wealth does not include services. Click the mouse button or press the Space Bar to display the information. Section 2-9

40. Discussion Question Why might a wealthy society not have as much economic staying power as another wealthy society with a highly skilled labor force? Answers will vary. Students may indicate that wealth is usually based on limited natural resources, whereas labor can produce more goods and services. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 1

41. The Circular Flow of Economic Activity • Markets are locations/mechanisms for buyers and sellers to trade. They are classified as local, regional, national, global, and cyberspace.  • A factor market is where people earn their incomes. Factor markets center on the four factors of production: land, capital, labor, and entrepreneurs.  • A product market is where people use their income to buy from producers. Product markets center on goods and services. Click the mouse button or press the Space Bar to display the information. Section 2-13

42. The Circular Flow of Economic Activity (cont.) Figure 1.3 Click the mouse button or press the Space Bar to display the information. Section 2-14

43. Discussion Question How are landlords a part of a factor market? They provide land or property (a factor of production) to consumers in exchange for rent money, which is the landlords’ source of income. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 1

44. Productivity and Economic Growth • Productivity is a measure of the amount of output produced by the amount of inputs within a certain time. Productivity increases with efficient use of scarce resources.  • Specialization and division of labor may improve productivity because they lead to more proficiency (and greater economic interdependence). Click the mouse button or press the Space Bar to display the information. Section 2-17

45. Productivity and Economic Growth • Investing in human capital improves productivity because when people’s skills, abilities, health, and motivation advance, productivity increases.  • Economic growth depends on high productivity. Yet, an economy’s productivity may be affected by its interdependence—reliance on others and their reliance on us to provide goods and services. Click the mouse button or press the Space Bar to display the information. Section 2-17

46. Discussion Question How may economic interdependence be a strength of an economy? A weakness? Answers will vary. Students may indicate that the economy may gain larger, more diverse markets, leading to greater income and productivity. But the economic problems of those additional markets (customers or suppliers) may adversely affect the economy’s production output or customer base. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 1

47. Section Assessment Main Idea Using your notes from the graphic organizer activity on page 12, explain the different transactions that take place in the product market. The buying and selling of goods and services, and using money from sales to produce more goods takes place in the product market. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 1

48. Section Assessment (cont.) Discussthe relationship among scarcity, value, utility, and wealth. Answers will vary. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 2

49. Section Assessment (cont.) Describethe circular flow of economic activity. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 3

50. Section Assessment (cont.) Explainwhy productivity is important to economic growth. When productivity goes up, more output is produced with the same amount of inputs in the same amount of time. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 4