Economics
Unit 1
Notes
Economic Choices
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Economics: the study of how we make decisions in
the world where resources are limited.
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Scarcity: forces you to make a choice
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If there is not enough of a product, scarcity happens
Wants verses Needs: Needs you must have, wants you
CAN live without
Trade-Offs
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A trade-off is the alternative you face if you decide to
do one thing over the other.
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Opportunity cost is what you cannot buy or do when
choosing to do one thing rather than another.
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Incentives are rewards offered to try to get people to
take certain economic actions.
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Example: You are offered a new cell phone every two years a
discount, why?
Costs
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The added cost of producing one additional unit is the
marginal cost.
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Variable costs are expenses that increase as production
grows.
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Fixed costs remain the same regardless of the number of
units produced.
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Variable Costs + Fixed Costs = Total Costs
Costs/Benefits
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The additional benefit associated with an action is
the marginal benefit.
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A cost-benefit analysis requires you to compare the
marginal costs and marginal benefits of a decision
Choices and Markets
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A rational choice is choosing the alternative that has
the greatest value from among comparable-quality
products.
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In a capitalist system, private citizens own most, if
not all, of the means of production.
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Economists use economic models to test solutions to
questions for which there are no obvious or easy
answers.
Markets
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A free enterprise system allows businesses to
compete for profit with a minimum of government
interference.
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In a market economy, most economic decisions are
made by individuals looking out for their own
interests.