1.01 Scarcity

Economics - the study of the production and exchange of goods and services.

  •    how people go about deciding what to make, how to make it, and the process of trading for what they want.

  • can also include the study of all human choices made in light of scarcity (the state of having limited resources but unlimited wants and needs)

    • there is scarcity of any good which is wanted more than the total amount that exists


*Scarcity - the fundament reason individuals and societies must make choices.

*Final goods and services can be also known as outputs, and the factors of production are also known as inputs, resources, or capital goods.


Consumption & Production

The two fundamental reasons why you may obtain a resource of any kind

    1. To consume it yourself directly, in which case it is a consumer good (final good(.

    2. As a factor of production in something you are making to sell, in which it is a     capital good (good used to turn something into something else).


The Factors of Production - the necessary resources to produce any good or service, subdivided into land, labor, and capital

  • Capital - resources that improve productivity; can include funding, equipment, and buildings.

    • a good that has been produced and can be used to produce other goods and services.


The issues of resource allocation (distribution or placement of scarce factors of production) and distribution

  1. What goods and services do we produce?

  2. How do we produce those goods and services?

  3. Who consumes those goods and services?


Economic Systens

Organized based on the history and culture of the people who make up the system.


Command - central planning by the government using involuntary laws, taxes, regulations, and restrictions— the planning agency determines production quantities for goods and services

  • ex. North Korea

Market - price determined by voluntary negotiation of buyers and sellers— control of resources determined by households and businesses

Tradition - economic activity is determined by customs and traditions. Usually based on farming, hunting, and/or fishing and are rural. Transactions are often determined by barter.


Mixed economies - has features of both command and market economies.