Chapter 1

Key Economic Concepts

What is Economics?

• Job Market• Housing Market• Consumer Mkt.• Manufacturing • Education

• Taxes• Banking and investing• International trade• Health care industry• R&D

Fundamental Economic Problem:Scarcity

• Unlimited wants vs. limited resources leads to scarcity.

• Scarcity causes people to make choices. – Real world example: Do we have enough resources

(money, doctors, hospitals) to ensure our entire population with “Cadillac level” insurance?

– Do I save money for a car or college?– Do I buy a laptop or a new cell phone?

• Economics is the study of how people make choices

• Choices lead to trade-off decisions– Take a trip to Hawaii or work

• With every trade-off, we have opportunity costs

• The value of what was given up, or the next best option– If you take the trip, you miss out on wages

Scarcity Visual

Unlimited wants Limited resources

Scarcity

What to produce?

How to produce?

How many to produce?

For whom to produce?

Questions all Societies must answer:

What to produce?

• New large hospitals or

small neighborhood clinics?

How to produce?

• For profit private companies

or, non-profit, co-op, or govt. funded?

Questions all Societies must answer:

• For whom to produce? Great healthcare only for those who can afford it or average to above-average for all?

• How many to produce? Many MRIs or few?

Limited resources (aka Factors of Production)

• Natural Resources- farmland, rivers and ports, mines, forests, etc.

• Human Resources- Workforce – both blue and white collar workers.

• Capital Resources- goods used to produce other goods & services. Money used for business.

• Entrepreneurship- Combining other factors of production in a new way.

Definitions

• Economics• Macroeconomics• Microeconomics• Good

• Service• Consumers• Producers• Productivity

Types of Economies

• How countries answer the 4 econ. ques.

• Traditional – Answers to econ. questions answered through tradition. Ex. Gwitchin

• Command – Govt. answers econ. ques. Ex. Communist countries like Cuba & N. K.

• Market – marketplace answers ques. Ex. U.S.