CHAPTER 1

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

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 SECTION 1
An Economic Way of Thinking

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

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 SECTION 1
An Economic Way of Thinking

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

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 SECTION 1
An Economic Way of Thinking

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

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 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.

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 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?

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 SECTION 2
Scarcity and Choice
Scarcity forces people to decide how
to use resources effectively.

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 SECTION 2
Scarcity and Choice
Questions producers must address to
distribute resources:
 what to produce
 how to produce
 for whom to produce

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 SECTION 2
Scarcity and Choice
Producers study productivity to
determine if resources are being used
wisely.

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 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?

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 SECTION 3
Opportunity Costs
Reasons sacrifice is an important
element of economic choice:
 forces people to make trade-offs
 results in opportunity costs

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 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

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 SECTION 3
Opportunity Costs
Reasons future production possibilities
might differ from current production
possibilities:
 changes in technology
 changes in the factors of production

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 SECTION 4
Exchange

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

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 SECTION 4
Exchange

Difficulties associated with bartering:

 relies on bargaining
 results in complicated transactions

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 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

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 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

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 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.
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