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X 0 P , J 8 j J J j j j j j j j j j j P j j j j J j j j j j j j j j V _ : Chapter 1-What is Economics?
Section 1Scarcity and Factors of Production
Economics- the science that studies how people seek to satisfy their needs + wants by making choices
Economics is divided into 2 branches:
Microeconomics- deals w/ human behavior and choices as they relate to small units- an individual, a business firm, a single market
Macroeconomics- deals w/ human behavior and choices as they relate to the entire economy
Scarcity + Choice
Needs-necessary for survivalair, food
Wants- things that we desire to havenot necessary for survival
-cars, clothes, money
-tangible wants can be felt or touchedcomputer, cash
-intangible wants cannot be felt or touchedlove, friendship
-cannot be satisfied by wishing
-problem---> wants are unlimited
People cannot have everything they want or need.must make choices
Scarcity- peoples wants are greater than the resources available to satisfy those wants
-economic fact of life
Scarcity = Wants/needs > Resources
Choices of which wants have to be madeScarcity ---> Choices
-shortage is not scarcity
-occurs when producers cannot or will not offer goods + services at current prices
Resources/Factors of Production- anything that is used to produce goods and/or services
-needed to produce goods and services
-limited
Land-land and natural resources: H2O, minerals, undeveloped land, animals, and forest
Labor-physical + mental talents that people contribute to the production of goods + services
-dentist work, mechanic, airplane pilot
Capital-produced goods that can be used as resources for further production
Physical Capitalbuilding, tools, pencil, computers, $$
Human Capitalknowledge + skills gained thru education + experience
Entrepreneurship
-special talent that some people have for searching out and taking advantage of new business opportunities and for developing new products and new ways of doing things
Section 2Opportunity Cost
Trade-Offs- a situation in which more of one thing necessarily means less of something else.
-all of the alternatives we give up when we choose 1 course of action over another
IndividualsBusinessesSociety-guns + butter
Every time you make a choice you incur an Opportunity Cost
the most valued opportunity or alternative you give up to do something
Rule Number 1Scarcity --->Choices --->Opportunity Costs
Thinking at the Margin
-deciding how much more or less to do of something
-Increase the opportunity cost of doing something ---> Do less of it
-Decrease the opportunity cost of doing something ---> Do more of it
Section 3Production Possibilities Curve
Production Possibilities Curve-A graph showing alternative ways to use an economys productive resources
GunsButter0158141412189205210
Production Possibilities Frontier shows combinations of producing more than 1 good or service
-using factors of production to make 1 product means fewer resources left to make another
Efficiency
-using resources in such a way as to maximize production of goods/services
-PPF represents an economy working at its most efficient level of production
-point inside the PPF indicated underutilization of resources
Growth
-shifts the PPF to the rightbecomes future ppf
-can also shift to the left
Cost
-is opportunity cost
-law of increasing cost states that as production switches from 1 item to another, more and more resources are necessary so opportunity cost increases
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