Economics: Today and Tomorrow © 2012Chapter 1:
What Is Economics?Chapter OverviewsSection 1: The Basic Problem in Economics
Economics is defined as how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants. In society, there is a significant difference between needs and wants. Individuals have basic essential needs to survive: food, clothing, shelter. On the contrary, everything else is considered a want, which means not essential to survive.
Throughout history, scarcity has prevented people from satisfying all their needs and wants. Scarcity means that people do not and cannot have enough income and time to satisfy their every want; therefore, people are forced to make choices about how they will use their resources. Scarce resources are divided into four general categories needed in the production of all goods and services: land, labor, capital, and entrepreneurship. Some economists add technology to the list of factors of production. Section 2: Trade-Offs
Combining trade-offs and opportunity cost is essential in making smart economic decisions.
A trade-off is exchanging one thing for another. The cost of a trade-off is what you
give up in order to get or do something else. Opportunity cost is the value of the next best alternative given up for the alternative that was chosen. Economists use a model called the production possibilities curve to show the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time. This curve can help determine how much of each item to produce, thus revealing the trade-offs and opportunity costs involved in each decision. Section 3: What Do Economists Do?
Economists construct models to investigate the way that economic systems work. Economists test the models to determine if it is a good representation of reality. Competing economic theories are supported by economists from different schools of thought.  | 
