CHAPTER 1

What Is Economics?
SECTION 1: An Economic Way of Thinking SECTION 2: Scarcity and Choice SECTION 3: Opportunity Costs SECTION 4: Exchange

1

SECTION 1 An Economic Way of Thinking

Objectives:
 What is economics?  What are the factors of production?  What is the goal of entrepreneurship?

2

SECTION 1 An Economic Way of Thinking

Economics
 Economics is the study of the choices that people make to satisfy their wants and needs.

3

SECTION 1 An Economic Way of Thinking

Factors of Production:
 natural resources  human resources  capital resources  entrepreneurship

4

SECTION 1 An Economic Way of Thinking

The goal of entrepreneurship
 The goal of entrepreneurship is to create a good or service of value by developing a new combination of the other factors of production.

5

SECTION 2

Scarcity and Choice

Objectives:
 Why is scarcity a basic problem of economics?  What issues must producers address to distribute resources?  Why do producers study productivity?

6

SECTION 2

Scarcity and Choice

Scarcity forces people to decide how to use resources effectively.

7

SECTION 2

Scarcity and Choice

Questions producers must address to distribute resources:
 what to produce  how to produce  for whom to produce

8

SECTION 2

Scarcity and Choice

Producers study productivity to determine if resources are being used wisely.

9

SECTION 3

Opportunity Costs

Objectives:
 Why is sacrifice an important element of economic choice?  What assumptions are involved in creating a production possibilities curve?  Why might future production possibilities differ from current production possibilities?
10

SECTION 3

Opportunity Costs

Reasons sacrifice is an important element of economic choice:
 forces people to make trade-offs  results in opportunity costs

11

SECTION 3

Opportunity Costs

Assumptions involved in creating a production possibilities curve:
 that the amount of available resources and technology will not change during the time being studied  that all the resources being used are utilized as efficiently as possible

12

SECTION 3

Opportunity Costs Reasons future production possibilities might differ from current production possibilities:
 changes in technology  changes in the factors of production

13

SECTION 4

Exchange

Objectives:
 What are the difficulties associated with barter?  Why is true self-sufficiency rare?  What are the economic benefits of interdependence?

14

SECTION 4

Exchange

Difficulties associated with bartering:
 relies on bargaining  results in complicated transactions

15

SECTION 4

Exchange

Why true self-sufficiency is rare:
 requires a large supply of tools, equipment, and raw materials  demands extensive skills and knowledge in a variety of fields

16

SECTION 4

Exchange

The economic benefits of interdependence:
 does not require countries to produce all goods they consume  allows countries to specialize in the production of certain goods while trading others

17

CHAPTER 1

Wrap-Up
1. What is the difference between microeconomics and macroeconomics? 2. Why is scarcity important in economics? 3. What three production issues must an economic system address? 4. How can division of labor and specialization increase productivity? 5. Identify the assumptions on which the production possibilities curve is based. 6. Describe the benefits of interdependence.
18