1. Economics
Chapter 1
Section 3

2. Trade-offs
Trade-offs- alternative choices whenever people make an economic decision
Looking at the advantages and disadvantages of making different purchases- some have additional costs
Use of grid to make decisions

3. Opportunity Costs
Opportunity costs- the cost of the next best alternative use of money, time, or resources
Exp.- you buy a car for $5,000- what is the opportunity cost?
Time also has opportunity cost

4. Production possibilities frontier
Production possibilities frontier- a diagram representing various combinations of goods and or services an economy can produce when all productive resources are fully employed
All points on the curve represent maximum combinations of output possible if all resources are fully employed, any points outside the curve cannot be reached

7. Production possibilities frontier
Opportunity cost can be visualized on the production possibilities curve
Cost of idle resources- the curve cannot reach its full potential when resources are not employed
Economic growth is made possible by having more resources or increased productivity

8. Building simple models
Models are based on assumptions or things we take for granted as true, we use them as facts even though we can’t be sure they are- the quality of the model is no better then the assumptions it is based on
Models can be adjusted to make better predictions the next time

9. Cost-benefit analysis
Cost benefit analysis- a way of thinking about a problem that compares the cost of an action to the benefits received
Businesses make investment decisions in exactly this manner- investing options that give the highest return per dollar
Decisions are best made in small, incremental steps toward the final goal

10. The road Ahead
Free enterprise economy- one in which consumers and privately owned businesses make the majority of the what, how, and for whom decisions
Variety of topics and issues
Standard of living- the quality of life based on the possession of the necessities and luxuries that make life easier

11. The Road Ahead
Economic issues are debated in politics and there are a number of issues related to government
Rational choice is taking the things with greater value and giving up those with lesser value
People do not think the same way
People have different degrees of ambition, strength and luck