The Fundamental Economic Problem Unit 1 Day 1

The Fundamental Economic Problem Unit 1, Day 1

Opener 8/29/17 • Copy the definitions • Economics-the study of how we make decisions in a world where resources are limited. • Scarcity - we do not have enough resources to produce all the things we would like to have. • Economic models. -simplified representations of the real world, based on economic theories.

Economic Choices • Economics is the study of how we make decisions in a world where resources are limited. • It is sometimes called the science of decision making. • Needs are things we need for survival, such as food, clothing, and shelter. • Wants are things we would like to have.

Economic Choices Individually, create a list on the bottom of your notes that reflects the two following statements: Things I need to live include: Things I want include:

Economic Choices • The fundamental economic problem is scarcity–we do not have enough resources to produce all the things we would like to have. • Because of scarcity, we must make choices among alternatives.

Economic Choices • Analyze the above cartoon illustrated by Jerry Scott and Jim Borgman in 1998. • Finally, include a reflection on the following: Luxuries such as concert tickets often become necessities in the eyes of consumers. How do consumers satisfy their seemingly unlimited wants?

Economic Choices There are three basic economic questions that a society must answer: • Society must decide what to produce with its limited resources. • For example, society may have to choose whether to produce goods for defense or services for poor people. • Society must decide how to produce. • For example, should we accept more pollution from factories in exchange for greater output of products?

Economic Choices • Society must decide for whom to produce. • Who will receive the goods and services? • In the United States, most goods and services are distributed through the price system.

Using Economic Models • The economy includes all the activity in a nation that together affects the production, distribution, and use of goods and services. Production Distribution Consumption

Using Economic Models • To study a part of the economy, economists use economic models. • These are simplified representations of the real world, based on economic theories. • Business and government often base decisions on solutions that emerge from testing economic models.

Using Economic Models • Models are based on assumptions. • The quality of the model’s results can be no better than the assumptions on which it is based. • Economists use models to better understand the past or present and to predict the future. • If predictions based on a model turn out to be wrong, economists revise the model.

Exit Slip • Using complete sentences answer this question What would life be like if no economic scarcity existed?