Applied Economics

Chapter 1
The Economic Problem
 The Economic Problem

Objectives:
 Recognize the economic problem and explain why it
makes choice necessary
 Define economics
 Identify productive resources
 Define goods and services and explain why they are
scarce
 In front of you are candies that you
may get and eat. Come on, everybody
is invited to get candies. Do not be
shy… 
 Choices

 Economics is about choices

 you just made some choices with regards to
the candy…
 Get candy
 Don’t get candy
 Get one piece
 Get all the pieces
You make choices
everyday/you have
much experience
making choices
You have to make
choices because of…
 The Economic Problem
“Scarcity”

 Not enough productive resources to satisfy people's

wants and needs
 You cannot have all the goods and services you want;
as a result, you must choose some things and give up
others
Economics Defined
 Productive Resources

 The inputs used to produce the goods and services

that people want
 Also called the “Factors of Production”
 “Land, Labor, Capital, Entrepreneurship”
 They can be categorized into:
 Natural Resources
 “gifts of nature” can be either renewable or exhaustible
 Human Resources
 Labor and Entrepreneurship
 Capital Goods
 All human creations used to produce goods and services
There is no such thing as a “Free
Lunch”
 Application

 Identify each of the following as a human resource,

natural resource, or a capital good
 A hammer used to build a wooden box
 The tree that was cut down to make lumber for the
wooden box
 The effort used to nail lumber together to make a
wooden box
 Identify a good or service that the government
provides that has no apparent cost to you. Why is this
good or service not really free?