Applied Economics
Chapter 1: What Is Economics?
Overview
As you read this chapter, look for answers to the following questions:
• What is "scarcity" and why must all societies deal with it?
• Why is economics sometimes called "the study of scarcity and choice"?
• What are trade-offs and opportunity costs?
• Why should everyone understand basic economics?
• What are the factors of production?
• How do different economic systems solve the problem of scarcity?
Scarcity
One discovery you have made is that you can't have everything! In fact, you probably are reminded of this every time you go shopping. You may see 20 or 30 items you would like, but you know you cannot afford to buy them all.
Everyone—not just teenagers—has to make choices. Governments have the power to tax and receive huge sums of money, but politicians still must debate how to spend taxpayers' money. All business owners or managers—and even coaches of professional basketball teams—must pick and choose from among the employees or equipment they would like to have. They cannot have everything.
There will always be a difference between what people want and the resources available to satisfy those wants. Human wants are unlimited, but the resources (land, labor, capital, and time) required to satisfy them are limited. Once that limit is reached, nothing else can be produced.
In other words, when a nation's resources (all its workers, factories, farms, etc.) are fully employed, the only way the nation will be able to increase the production of one thing will be by reducing the production of something else. This happened during World War II in the United States. In their efforts to increase the production of tanks and other military vehicles, our nation's factories stopped producing automobiles. So if somebody tries to sell you a 1944 Ford or Chevrolet, beware: none were produced that year!
Thus, if human wants are unlimited, but resources to satisfy those wants are limited, then people in
Overview
As you read this chapter, look for answers to the following questions:
• What is "scarcity" and why must all societies deal with it?
• Why is economics sometimes called "the study of scarcity and choice"?
• What are trade-offs and opportunity costs?
• Why should everyone understand basic economics?
• What are the factors of production?
• How do different economic systems solve the problem of scarcity?
Scarcity
One discovery you have made is that you can't have everything! In fact, you probably are reminded of this every time you go shopping. You may see 20 or 30 items you would like, but you know you cannot afford to buy them all.
Everyone—not just teenagers—has to make choices. Governments have the power to tax and receive huge sums of money, but politicians still must debate how to spend taxpayers' money. All business owners or managers—and even coaches of professional basketball teams—must pick and choose from among the employees or equipment they would like to have. They cannot have everything.
There will always be a difference between what people want and the resources available to satisfy those wants. Human wants are unlimited, but the resources (land, labor, capital, and time) required to satisfy them are limited. Once that limit is reached, nothing else can be produced.
In other words, when a nation's resources (all its workers, factories, farms, etc.) are fully employed, the only way the nation will be able to increase the production of one thing will be by reducing the production of something else. This happened during World War II in the United States. In their efforts to increase the production of tanks and other military vehicles, our nation's factories stopped producing automobiles. So if somebody tries to sell you a 1944 Ford or Chevrolet, beware: none were produced that year!
Thus, if human wants are unlimited, but resources to satisfy those wants are limited, then people in