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1.1 Scarcity: The Basic Economic Problem

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Quinn Graves

on 11 August 2015

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Transcript of 1.1 Scarcity: The Basic Economic Problem

The Basic Economic Problem
Scarcity Leads to Three Economic Questions
The Factors of Production

What Is Scarcity?
Wants — desires that can be met by consuming products
Needs — things necessary for survival
Scarcity — lack of resources available to meet all human wants

– not a temporary shortage
Economics — study of how people use resources to satisfy wants
Key Concepts
– examines how individuals and societies choose to use resources

– organizes, analyzes, interprets data about economic behaviors

– develops theories, economic laws to explain economy, predicts future
Principle 1:
People Have Wants
People make choices about all their needs and wants
Wants are unlimited, ever changing
Principle 2:
Scarcity Affects Everyone
Scarcity affects which goods and services are provided
Goods — physical objects that can be bought

Services — work one person does for another for pay

Consumer — person who buys good or service for personal use

Producer — person who makes a good or provides a service
Scarcity affects society and producers as well as individuals
Society must answer three basic economic questions:
Question 1:
What Will Be Produced?
Societies must decide on mix of goods to produce
– depends in part on their natural resources
Some countries allow producers and consumers to decide
In other countries, governments decide
Must also decide how much to produce; choice depends on societies’ wants
Question 2:
How Will It Be Produced?
Decisions on production methods involve using resources efficiently
– decisions influenced by a society’s natural resources
• Societies adopt different approaches
– with unskilled labor force, might use labor-intensive methods

– with skilled labor force, might use capital-intensive methods
Question 3:
For Whom Will It Be Produced?
How goods and services are distributed involves two questions
– how should each person’s share be determined?

– how will goods and services be delivered to people?


Factors of production — resources needed to produce goods and services

– include land, labor, capital, entrepreneurship

– supply is limited

The Factors of Production

Factor 1: Land

Land means all natural resources on or under the ground
– includes water, forests, wildlife, mineral deposit
Factor 2:

Labor is all the human time, effort, talent used to make products
– physical and mental effort used to make a good or provide a service
Factor 3: Capital
Capital is a producer’s physical resources
– includes tools, machines, offices, stores, roads, vehicles

– sometimes called physical capital or real capital
Workers invest in human capital — knowledge and skills
– workers with more human capital are more productive
Factor 4:
Entrepreneurship — vision, skill, ingenuity, willingness to take risks
Entrepreneurs anticipate consumer wants, satisfy these in new ways
– develop new products, methods of production, marketing or distributing

– risk time, energy, creativity, money to make a profit
“Picture yourself on vacation – up in the southeast Alaskan waterways canoeing with a group of friends.
The month is June, the scenery is spectacular and the weather is fair. So far, it’s been good times and
smooth sailing, but today you’ve noticed more clouds than usual and a chill in the air. You and your friends
climb into your canoes anyway, thinking that even if it does rain, you’ll be able to dry off after you travel
the day’s course and make camp. The rain comes as you expected, but it doesn’t stop as you had hoped.

The clouds get darker, the rain begins to pour, and gusts of wind whip your canoe, making it almost
impossible to paddle. You know you are in real trouble. Suddenly, a huge wave hits your canoe and
without warning you capsize and find yourself thrashing about amidst the white caps. The next thing you know, you are frantically swimming toward the nearest shore. Gasping for breath and shivering from the icy Alaskan water, you drag yourself up onto the shore – barely able to believe that you made it and are still alive.”
Write your survival plan on a seperate sheet of paper. As you develop your survival plan, consider the following questions:
1. What will you produce?
2. How will you make it?
3. How will you share it?
Full transcript