Economics Today and Tomorrow

Chapter 1: What Is Economics?

Chapter Overviews

Chapter 1 introduces you to economics—the study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants. To economists, wants and needs differ. Something that is necessary for basic survival is a "need;" anything else is a "want." Why can't people fulfill all their needs and wants? Scarcity—the basic problem of economics—forces people to make choices when satisfying their needs and wants.

Factors of Production
When economists talk about scarce resources, they are referring to four factors that must be present for any good or service to be produced: land, labor, capital, and entrepreneurship. Economists sometimes add technology as a fifth factor.

Trade-Offs
Because of scarcity, people must make choices about how they will use their resources. These choices result in trade-offs and opportunity costs. Economists use a production possibilities curve to reveal trade-offs and opportunity costs involved in business decisions. This chapter also focuses on how economic models help economists analyze problems, and it concludes with an examination of why there are different schools of economic thought.