Economics: The Core Issues

Chapter 1

McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
 Three Core Choices
• Three core choices confront every nation:
– WHAT to produce with our limited resources
– HOW to produce the goods and services we select
– FOR WHOM goods and services are produced;
that is, who should get them

1-2
 Scarcity: The Core Problem
• Scarcity: Lack of enough resources to satisfy
all desired uses of those resources

1-3
 Factors of Production
• Factors of Production: Resource inputs used
to produce goods and services
• Four Types:
– Land
– Labor
– Capital
– Entrepreneurship

1-4
 Factors of Production
• Land: Includes all natural resources
– e.g. oil, water, iron ore, energy, etc.
• Labor: Quantity and quality of human
resources
– Includes physical presence of workers as well as
their skills and abilities

1-5
 Factors of Production
• Capital: Final goods produced for use in
production of other goods and services
– Includes equipment and structures, such as:
• Factories
• Production machinery
• Fleet vehicles

1-6
 Factors of Production
• Entrepreneurship: Assembling of resources
to produce new or improved products and
technologies
– It’s not just a matter of what resources you have
but also of how well you use them

1-7
 Limits to Output
• Scarcity of resources limits the amount of
production that can be undertaken
– Requires choices to be made
• Economics: The study of how best to allocate
scarce resources among competing uses

1-8
 Opportunity Costs
• Opportunity cost: The next most desired
goods and services foregone to obtain
something else
– What is given up to undertake a chosen activity
• Associated with every decision
– For example, if we choose to produce bread then
we cannot produce pizza crust with the same flour

1-9
 Economics: The Core Issues
End of Chapter 1

McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.