Fall 2012 CHAPTER 1: THE CHALLENGE OF ECONOMICS

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CHAPTER 1: THE CHALLENGE OF ECONOMICS Definitions and Questions  All economic questions and problems arise because human wants exceed the resources available to satisfy them.  Scarcity: - The condition that arises because the available resources are insufficient to satisfy wants. o Our resources are limited but our wants are unlimited. - Scarcity: Lack of enough resources to satisfy all desired uses of those resources The Central Problem of Scarcity  Our materialistic wants and desires continue to grow. - Newest camera phone - Larger television - Bigger house - Exotic vacation  Why can’t we have everything we want? - Our wants exceed our resources. Economics and Opportunity Cost  Economics – the study of how best to allocate scare resources among competing users.  Opportunity cost – The value or price of the most desired goods and services that are foregone in order to obtain something else. - The next best alternative that you give up. Factors of Production  Resource inputs used to produce goods and services.  The four resources: - Labor, land, capital and entrepreneurship  Resources are factors of production.  Economic resources – all natural human and manufactured resources that can be used in the production of goods and services.  Land – arable land, forests, minerals, energy (oil deposits and coal), water, air, wild plants, animals, birds and fish.  Labor – all the physical and intellectual talents that can be used in the production of goods and services.  Capital – all manufactured aids to production like tools, instruments, equipment, machines, factory, buildings, transportation, and distribution facilities that businesses use in producing goods and services. It does not include financial capital like money, stock, or bonds.  Entrepreneurship – the social human resource that organizes labor,