What is economics?

Economic choices We are faced with choices because we do not have enough productive resources to satisfy all of our wants and needs.

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

Need or want? Wants Needs Required for survival Things we would like to have

The fundamental economic problem is scarcity (when we do not have enough resources to produce all of the things we would like to have).

Making economic decisions

Trade-offs Have to take all aspects of transactions into account Ex: you trade money to buy a product

Opportunity cost is the next best thing that you had to give up for the choice you made (includes money and inconveniences)

Fixed costs do not change no matter how much is produced Variable costs change w/the amount produced

Fixed Costs + Variable Costs=Total Cost

Marginal cost is the cost of producing one more unit of output. Businesses look at total and marginal cost to determine final cost

Cost-Benefit analysis Econ. model that compares marginal costs and benefits Benefits should outweigh the costs when making decisions

Your role in the economy U.S. has a market economy Choices you make affect choices businesses make (like what to make or how much to charge)

Market economies are based on capitalism and free enterprise Incentives try to persuade people to make certain economic decision

Making wise choices Rational choice involves consumer’s perceptions Benefits society by making the best use of scarce resources