Splash Screen 2 Section 1-3 In 1901, people discovered oil in Texas— but they were actually looking for water! Disappointed, they offered to trade the

Splash Screen

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Section 1-3

• In 1901, people discovered oil in Texas—but they were actually looking for water! Disappointed, they offered to trade the oil for water at a ratio of 1:1 (one barrel of oil for each barrel of water).

Lecture Launcher

• Which is a more primary need, oil or water?

• What is the difference between a need an a want?

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Chapter Summary 1

Section 1: The Basic Problem in Economics

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

• Individuals satisfy their unlimited wants in a world of limited resources by making choices.

• The need to make choices arises because of scarcity, the basic problem of economics.

• The resources needed to make goods and services are known as the factors of production.

Click the mouse button or press the Space Bar to display the information.

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Chapter Summary 1

Section 1: The Basic Problem in Economics (cont.)

• The four factors of production include land, or natural resources; labor, also known as human resources; capital, the manufactured goods used to make other goods and services; and entrepreneurship, the ability of risk-taking individuals to start new businesses and introduce new products and processes.

• Some economists add technology to the list of factors of production.


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Chapter Summary 2


Section 2: Trade-Offs• People are forced to make trade-offs every

time they use their resources in one way and not another.

• The cost of making a trade-off is known as opportunity cost–the value of the next best alternative that had to be given up to do the action that was chosen.

• A production possibilities curve is a graph that shows the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time.

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Chapter Summary 2

Section 2: Trade-Offs (cont.)

• The classic example for explaining production possibilities in economics is the trade-off between guns (military defense) and butter (civilian goods).

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Section 2-7


Production Possibilities Curve• The production possibilities curve shows

the maximum combination of goods and services that can be produced from a given amount of resources.

• Classic Example—military spending vs. domestic programs (“guns or butter”)

Figure 1.6 Production Possibilities for Jewelry

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Section 2-7


Production Possibilities Curve• Using a production possibilities curve, a

producer can decide how to use resources. Figure 1.7

Production Possibilities–Military Goods Versus Civilian Goods

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Section 2-4


Discussion Question

Consider all the costs of choosing to play a particular fall sport. Name all the costs and explain whether or not you would still choose to play.

Answers will vary. Students should consider the amount of time and money the sport will cost them. They should also consider their next best alternative, or opportunity cost, as they make their decision.

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Chapter Summary 4


Section 3: What Do Economists Do?• Economists study the economy–all the

activity in a nation that together affects the production, distribution, and use of goods and services.

• Economists also formulate theories called economic models, which are simplified representations of the real world.

• Economists test their models in the same way that other scientists test hypotheses, or educated guesses.

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Chapter Summary 4


Section 3: What Do Economists Do? (cont.)

• Economists deal with facts, although their personal opinions may sway their theories.

• Economists offer solutions to economic problems, but they do not put value judgments on those solutions.

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Section 3-5


Economic Models (cont.)

• Models may not always be accurate due to the inability to predict human behavior.

Figure 1.10 Economic ModelsGraph A is an example of a model, and Graph B is a test of that model.

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Chapter Assessment 1

Click the mouse button or press the Space Bar to display the answer.

What is the condition that results because wants are unlimited?

Recalling Facts and Ideas

scarcity

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Recalling Facts and Ideas (cont.)


What is the difference between scarcity and shortages?

Scarcity refers to the fixed, or set, amount of resources available to fulfill unlimited wants. Shortages refer to situations where items are temporarily in short supply.

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Your friend says, “I need some new clothes.” Under what conditions would this be expressing a need? A want?

It would be a need if the clothes were an absolute necessity; it would be a want if a simple desire for more clothes was being expressed.

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What are the four factors of production?

land, labor, capital, entrepreneurship

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What does making a trade-off require you to do?

It requires you to exchange one thing for the use of another.

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What do economists call the next best alternative that had to be given up for the one chosen?

opportunity cost

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In economics, what is cost?

a foregone opportunity

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What does a production possibilities curve show?

A graph showing the combination of goods and services that can be produced with a fixed amount of resources in a given period of time

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For what purposes do economists use real-world data in building models?

as the basis for testing theories that explain an event or offer a solution to a problem

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An economic theory is another name for what?

an economic model

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When does an economist consider an economic model useful?

if it provides useful material for analyzing the way the real world works

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Drawing Inferences and Conclusions Some people argue that air is not an economic good. Explain why you agree or disagree with this statement.

Thinking Critically

Possible answers: Some may agree, pointing out that people do not have to give up anything of value to breathe the air. Others might disagree, noting that because of pollution, an economic cost is paid to clean up the air and to cover the medical expenses of those made sick by the pollution.

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When is an automobile considered a capital good?

when it is used to produce a service, such as pizza delivery


Chapter Launch Activity

Click the mouse button to return to the Contents slide.

Imagine that you have $100 to spend. Make a list of the items you would like to buy and the approximate price of each item. Add up the prices and, if the total exceeds $100, remove items so that you do not exceed your budget.

What choices did you make, and why did you make them?

Economic Concepts 1

Economic Concepts 2

Focus Activity 1.1

Continued on next slide.

Focus Activity 1.2

Focus Activity 2.1


Focus Activity 2.2

Focus Activity 3.1


Focus Activity 3.2

Global Economy 1.1

Economic development in developing countries, as in developed countries, is linked to the factors of production. Many economists believe that the biggest obstacle to economic growth in developing countries is the quality of labor. With low literacy rates and poor health conditions, labor forces in developing countries do not have the skills needed to keep up with modern technology.

Factors of Production

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Splash Screen 2 Section 1-3 In 1901, people discovered oil in Texas— but they were actually looking for water! Disappointed, they offered to trade the