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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.