Economics Unit 1Notes

Economic Choices

• Economics: the study of how we make decisions in the world where resources are limited.

• Scarcity: forces you to make a choice• If there is not enough of a product, scarcity happens

• Wants verses Needs: Needs you must have, wants you CAN live without

Trade-Offs

• A trade-off is the alternative you face if you decide to do one thing over the other.

• Opportunity cost is what you cannot buy or do when choosing to do one thing rather than another.

• Incentives are rewards offered to try to get people to take certain economic actions.• Example: You are offered a new cell phone every two years a

discount, why?

Costs

• The added cost of producing one additional unit is the marginal cost.

• Variable costs are expenses that increase as production grows.

• Fixed costs remain the same regardless of the number of units produced.

• Variable Costs + Fixed Costs = Total Costs

Costs/Benefits

• The additional benefit associated with an action is the marginal benefit.

• A cost-benefit analysis requires you to compare the marginal costs and marginal benefits of a decision

Choices and Markets

• A rational choice is choosing the alternative that has the greatest value from among comparable-quality products.

• In a capitalist system, private citizens own most, if not all, of the means of production.

• Economists use economic models to test solutions to questions for which there are no obvious or easy answers.

Markets

• A free enterprise system allows businesses to compete for profit with a minimum of government interference.

• In a market economy, most economic decisions are made by individuals looking out for their own interests.