Fundamental Economic Concepts 1 explain the nature of

Fundamental Economic Concepts • 1) explain the nature of scarcity and show its relationship to economics; • 2) describe the factors of production; • 3) examine the 3 basic economic questions each society must decide; • 4) define economics and identify the 4 key elements within its scope.

Economics • The study of human efforts to deal with their wants and needs and the scarcity of resources.

Scarcity • The condition that arises because society does not have enough resources to produce all the things people would like to have.

Factors of Production • “gifts of nature” • Everything from forests to climates.

Capital goods • Tools, equipment, and factories used in producing goods and services.

Financial Capital • Money used to buy tools and equipment for production.

Labor • People with their efforts, abilities and skills.

Entrepreneurs • A risk-taker in search of profits.

3 Basic Questions: • 1) What to produce • 2) How to produce • 3) FOR WHOM to produce

Key Elements of Economics • • 1) Description of economic activity; 2) Analyzing economic activity; 3) Explaining economic activity: 4) Predicting economic activity.

Trade-Offs • Alternative choices

Opportunity costs • The cost of the next best alternative use of money, time or resources.