This chapter introduces economics and key concepts like scarcity, trade-offs, and opportunity costs. It discusses how economists use models to study the real world. The main points are: 1) Economics involves making choices because resources are scarce and wants exceed what's available. The four factors of production are land, labor, capital, and entrepreneurship. 2) Trade-offs require sacrificing one thing for another and create opportunity costs, like the value of the next best alternative given up. Production possibilities curves illustrate the maximum amounts of two items an economy can produce. 3) Economists use models as simplified representations to explain behavior. Microeconomics examines individuals and firms while macroeconomics looks at whole economies

1. An Introduction to
Economics
Chapter 1

2. The Basic Problem in
Economics
Section 1

3. Learning Goals
 Explain how wants and needs differ.
 Explain how scarcity faces people at all
times.
 Define the four factors of production.

4. What is Economics?
 Economics- the study of how individuals and
societies make choices about ways to use scarce
resources to fulfill their needs and wants.
 To economists, everything other than basic
survival is considered a want.
 Want begins as a luxury, or want, becomes to many
a necessity.

6. Choices

7. The Problem
of Scarcity
The need to make choices
arises because everything that
exists is limited.
Scarcity- condition of not
being able to have all of the
goods and services one wants,
because wants exceed what
can be made from all
available resources at any
given time.
Income can be considered a
scarce resource.
Scarcity always exists because
of competing alternative uses
for resources

8. Scarcity

9. Factors of Production

10. Factors
 Factors of production:
 Land- refers to natural resources without human intervention
 Labor- a human resource, including anyone who produces
goods and services.
 Goods- tangible objects that can satisfy people’s wants
 Services- actions that can satisfy people’s wants
 Capital- previously manufactured goods used to make other
goods and services
 Productivity- the amlunt of out-put [goods and services] that
results from a given level of inputs [land, labor, capital]

11. Factors continued…
 Entrepreneurship- ability of risk taking individuals to
develop new products and start new businesses in order
to make profits
 30% of new businesses fail
 Of the 70% that survive, only a few become wildly
successful: i.e. Apple, Netflix, Verizon
 Technology- advance in knowledge leading to new and
improved goods and services and better ways to
producing them
 i.e. a computer is a technological advancement over a
typewriter
 Today technology describes the use of science to develop
new products and new methods for distributing goods
and services

12. Factors Continued

13. Review
 How do consumers satisfy
their seemingly unlimited
wants?
 What is the basic economic
problem that makes choices
necessary?
 By making choices
 scarcity

14. Trade-Offs
Section 2

15. Learning Goals
 Explain how the concept of trade-offs
is related to opportunity costs and the
production possibilities curve.

16. Trade-Offs
 Trade-off: sacrificing one
good or service to purchase
or produce another.
 i.e.- if you choose to buy an
iPod you are exchanging
money for the right to own
an iPod

17. The Cost
of Trade-
Offs
 Result of a trade-off is what you give up in order to
get something else
 i.e.- Time is a scarce resource, so you choose how to
use it
 Opportunity cost- value of the next best alternative
given up for the alternative that was chosen
 i.e.- studying instead of socializing with friends-
you consider the single NEXT best alternative is the
opportunity cost

18. Considering Opportunity
Costs
 Being aware of
trade-offs and their
resulting
opportunity costs
is vital in economic
decision @ all
levels.
 i.e.- Congress votes
$220 billion to
finance needed
highways,
Congress could
have voted for
increased spending
on new schools.
The opportunity
cost of building
new highways is
fewer schools.

19. Production Possibilities
Curve
 Production possibilites curve-
graph showing the maximum
combinations of goods and
services that can be produced
from a fixed amount of
resources in a given period of
time.
 Curve can help people and
businesses determine how
much of each item to produce,
thus revealing the trade-offs
and opportunity costs
involved in each decision.

20. Explanation of the Production
Possibilities Curve
 The classic example illustrates the potential
production possibilities between military defense
and civilian goods.
 Point A on the graph represents all resources being
used to produce guns, Point E for butter. The
amount of military goods given up in the year is the
opportunity cost for increasing civilian goods
production.
 Members of the federal government determine
where on the curve the nation will be.

21. Review
 How are trade-offs and opportunity costs related?
 Answer: Every trade-off involves an opportunity
cost.
 CREATE YOUR OWN PRODUCTION
POSSIBILITIES CURVE:
 Include: “Hours Spent Online” on the Horizontal
Axis; “Hours Spent Studying” on the Vertical Axis
 Write a caption explaining the opportunity cost of
each activity

22. What do Economists do?
Section 3

23. Describe & Explain the
use of economic models
by economists
Learning Goal

24. The Division of Economics
 Microeconomics- the branch of economic theory
that deals with behavior and decision making by
small units such as individuals and firms
 Macroeconomics- the branch of economic theory
dealing with the economy as a whole and decision
making by large units such as government

25. Economic Models
 Economy- the production and distribution of goods
and servicers in a society
 Economic model- a thoery or simplified
representation that helps explain and predict
economic behavior in the real world
 Physicists, chemists, biologists and historians use
models to understand the complex working of the
world- economic models show visual
representations of consumer, business, or other
economic behavior

26. Economic Models

27. Economic
Hypothesis

28. Example on a Graph

29. Hypothesis
 Some economists believe to stimulate the economy, taxes
should be cut and government spending increased.
 Cutting taxes may put more money into consumers
pockets which will increase personal spending and
increase total production
 However some people fear that possible higher taxes in
the future might cause them to save extra money rather
then spend
 This illustrates how economists cannot take into account
all of the factors that may influence people’s behavior

30. Schools of Economic
Thought
 Economists deal with fact, their personal opinions and
beliefs may nonetheless influence how they view those
facts and fit them into theories
 The government under which an economist lives also
shapes how he or she views the world
 As a result, all economists will not agree that a particulr
thory offers the best solution to a problem
 Throughout American history, economists have stressed
the importance of government maintaining a “hands off”
in business and consumer affairs as a method of
preventing increased unemployment and inflation

31. Values and Economics
 Learning about economics will help you predict what
may happen if certain events occur or certain policies are
follows.
 Values are the beliefs or characteristics that a person or
group considers important, such as religious freedom,
equal opportunity, individual initiative, freedom from
want, and so on.
 Even having the same values does not mean that oeioke wukk
agree about solutions to problems, strategies, or interpretations
of data
 Economists only inform us as to likely short-term and
long-term outcomes of these policies

32. Review
 Why are there
different schools of
economic thought?
 Answer: economists’
personal opinions
and beliefs may
influence how they
view facts and fit
them to theories. The
government under
which economists
live also shapes how
they view the world
 Create a diagram like the
one below to show how
economists use models to
study the real world
Idea
Test
Hypothesis