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Chapter Introduction

Section 1: The Basic Problem in Economics

Section 2: Trade-Offs

Section 3: What Do Economists Do?

Visual Summary

Chapter Intro 1

Scarcity is the basic economic problem that requires people to make choices about how to use limited resources.

Chapter Intro 2

Have you ever wanted to buy something or to participate in an activity, but you couldn’t because you didn’t have enough income or time? How do scarce resources like time and income affect you and everyone around you? In this chapter, read to learn about what economics is and how it is part of your daily life.

Chapter Preview-End

Section 1-Main Idea

Section Preview

In this section, you will learn that the driving forces behind economics are scarcity and choices.

Section 1-Polling Question

Can you give an example of the difference between a want and a need?

A. Yes

B. No

0%0%

A. A

B. B

Section 1

Wants, Needs, and Choices

The basic problem in economics is how to satisfy unlimited wants with limited resources.

Section 1

Wants, Needs, and Choices (cont.)

• Economics is the study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants.

• Economics is divided into two parts:

– Microeconomics

– Macroeconomics

Section 1

Wants, Needs, and Choices (cont.)

• To economists, anything other than what people need for basic survival is a want.

• How societies make choices about the utilization of their resources is the focus of economics.

A. A

B. B

C. C

D. D

Section 1

A B C D

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Which need does not fall under basic survival?

A. Clothes

B. Automobiles

C. Food

D. Shelter

Section 1

The Problem of Scarcity

Scarcity exists because people’s incomes and time are limited.

Section 1

The Problem of Scarcity (cont.)

• Choices arise because everything that exists is limited. At the same time, people have competing uses for the available resources resulting in scarcity.

• Shortages are temporary, whereas scarcity is permanent.

A. A

B. B

C. C

D. D

Section 1

A B C D

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Scarcity exists because of which limited resources?

A. Time and wants

B. Wants and needs

C. Money and time

D. Money and needs

Section 1

The Factors of Production

Scarce resources require choices about uses of the factors of production: land, labor, capital, and entrepreneurship.

Section 1

The Factors of Production (cont.)

• When economists talk about scarce resources, they are referring to the factors of production:

– Land includes all natural resources like water, mineral deposits, gifts of nature.

– Labor is the work people do to produce goods and services.

– Capital, when combined with land and labor, increases the value of all three factors and increases productivity.

Section 1

The Factors of Production (cont.)

– Technology (sometimes added to the list of factors of production) uses science to more efficiently use land, labor and capital.

– Entrepreneurship is individuals taking risks to start new businesses.

• How much of each of these factors of production an individual has determines his or her wealth.

View: U.S. Household Income Distribution

A. A

B. B

C. C

D. D

Section 1

A B C D

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The tools used to make a new car would fall under which factor of production?

A. Land

B. Labor

C. Capital

D. Entrepreneurship

Section 1-End

Section 2-Main Idea

Section Preview

In this section, you will learn about the relationship between trade-offs and opportunity costs, and how a production possibilities curve can help people make informed economic choices.

Section 2-Polling Question

Have you ever made a decision that had far-reaching consequences?

A. Yes

B. No

0%0%

A. A

B. B

Section 2

Trade-Offs

Economic decisions always involve trade-offs that have costs.

Section 2

Trade-Offs (cont.)

• The economic choices people make involve trade-offs.

• The cost of a trade-off is what you give up in order to get or do something else.

• Economists call the value of the next best alternative or trade-off, opportunity cost.

View: What’s the Difference Between a Trade-Off and an Opportunity Cost?

A. A

B. B

C. C

D. D

Section 2

A B C D

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Which of the following considers opportunity costs every day?

A. Individual

B. Non-profit organization

C. Nations

D. Businesses

Section 2

Production Possibilities Curve

A production possibilities curve shows the maximum combinations of goods and services that can be produced with a given amount of resources.

Section 2

Production Possibilities Curve (cont.)

• A production possibilities curve can help determine how much of each item to produce, thus revealing the trade-offs and opportunity costs involved in each decision.

View: A Production Possibilities Curve

View: Production Possibilities—Guns vs. Butter

A. A

B. B

Section 2

A production possibilities curve can help nations, businesses, and individuals decide how best to use their resources.

A. True

B. False

0%0%

Section 2-End

Section 3-Main Idea

Section Preview

In this section, you’ll learn about how economists use models to explain and predict economic behavior, and that economists may not always agree on which model or theory is the best one.

Section 3-Polling Question

Do you have a preconceived notion about economists?

A. Yes

B. No

0%0%

A. A

B. B

Section 3

Economic Models

Economists construct models to investigate the way that economic systems work.

Section 3

Economic Models (cont.)

• Economists study the ways individuals, businesses and nations use their limited resources.

• Economy refers to all activity in a nation that together affects the production, distribution and use of goods and services.

• In studying a specific part of the economy, economists will formulate an economic model, which helps explain and predict economic behavior in the real world.

Section 3

Economic Models (cont.)

• Economists test these economic models, and the solutions that result from these tests often become the basis for actual decisions by private businesses or government agencies.

• Economic models show a visual representation of how consumers and businesspeople react to changes in the world around them.

Section 3

Economic Models (cont.)

• Economists assume that some factors remain constant in order to focus on the basic factors needed to analyze the problem at hand.

• An economist can test his theory, or model, in the same way that other scientists test a hypothesis.

View: Economic Models

A. A

B. B

C. C

Section 3

In your opinion, does studying a model provide enough information compared to an actual representation?

A. It provides more than enough information.

B. It provides just enoughinformation.

C. It doesn’t provide enoughinformation.

A B C

0% 0%0%

Section 3

Schools of Economic Thought

Competing economic theories are supported by economists from different schools of thought.

Section 3

Schools of Economic Thought (cont.)

• Personal opinions and the government under which an economist lives both shape how he or she views the world.

• Over the years, economists have stressed the importance of both a laissez-faire (hands-off) government and a government that intervenes in the economy.

Section 3

Schools of Economic Thought (cont.)

• Learning about economics will help you predict what may happen if certain events occur or certain policies are followed.

• Whether you think the results are good or bad will be based on your values.

• Values are beliefs or characteristics that a person or group considers important.

A. A

B. B

C. C

Section 3

Do you feel that it is possible for economists to maintain an objective view of the economy?

A. Always

B. Sometimes

C. Never

0% 0%0%

Section 3-End

VS 1

Scarcity exists because people’s income and time are limited. Consumers seek a balance between satisfying their needs and wants and allocating their time and income.

VS 2

Economic decisions always involve trade-offs that have costs. Whenever you make an economic choice, you are sacrificing other goods or services that you may have purchased with your limited resources.

VS 3

Economists use economic models to investigate the ways in which economic systems work.

VS-End

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Figure 3

Figure 4

Figure 5

Concept Trans Menu

Economic Concepts Transparencies

Transparency 1 Scarcity

Transparency 2 Opportunity Costs & Trade-Offs

Transparency 3 Productivity

Select a transparency to view.

Concept Trans 1

Concept Trans 2

Concept Trans 3

DFS Trans 1

DFS Trans 2

DFS Trans 3

Vocab1

economics: the study of how people make choices about ways to use limited resources to fulfill their wants

Vocab2

microeconomics: the branch of economic theory that deals with behavior and decision making by small units such as individuals and firms

Vocab3

macroeconomics: the branch of economic theory dealing with the economy as a whole and decision making by large units such as governments

Vocab4

scarcity: basic economic problem that results from a combination of limited resources and unlimited wants

Vocab5

factors of production: resources of land, labor, capital, and entrepreneurship used to produce goods and services

Vocab6

land: natural resources and surface land and water

Vocab7

labor: human effort directed toward producing goods and services

Vocab8

goods: tangible objects that can satisfy people’s wants or needs

Vocab9

services: actions that can satisfy people’s wants or needs

Vocab10

capital: previously manufactured goods used to make other goods and services

Vocab11

productivity: the amount of output (goods and services) that results from a given level of inputs (land, labor, capital, and entrepreneurship)

Vocab12

entrepreneurship: when individuals take risks to develop new products and start new businesses in order to make profits

Vocab13

technology: the use of science to develop new products and new methods for producing and distributing goods and services

Vocab14

trade-off: sacrificing one good or service to purchase or produce another

Vocab15

opportunity cost: value of the next best alternative given up for the alternative that was chosen

Vocab16

production possibilities 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

Vocab17

economy: the production and distribution of goods and services in a society

Vocab18

economic model: a theory or simplified representation that helps explain and predict economic behavior in the real world

Vocab19

hypothesis: an assumption involving two or more variables that must be tested for validity

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