ARE Unit Two: 1st Principles: Scarcity and Opportunity Cost

Opportunity Cost

the value of the next best alternative that the person/people did not choose

Why do people make choices?

resources are scarce

What is an overall goal of economics?

how to allocate the scarce resources in an efficient way so the maximum human wants can be satisfied

resource

something that can satisfy humans wants or can be used to produce something

scarcity

when something is not available enough

microeconomics

studies the behavior of individual units of the economy

what is an example of microeconomics?

supply and demand of a particular good

macroeconomics

studies the behavior of the entirety of the economy as a whole

what is an example of macroeconomics?

the whole sale price of a good

What are some decision that need to be made in economies?

what / how to produce

how much and for whom to produce

traditional economy

organize their economic affair the way they have always done.

• occupations stay in family (family farms)

• decision taken by the family

command economy

ruler / government provides land in return the citizens provide labor and soldier

• decisions taken by the government

market economy

decision making is determined by buyers and sellers and their demand and supply

market

institution that brings together buyers and sellers for exchange of goods or services

T/F: market economies and command economies are two extremes

true

What kind of economy does the USA have?

market economy

equilibrium

an economic situation where no individual would be better off doing something else; no one has an incentive to change their behavior

what is an example of equilibrium?

there are 10 people in line at the grocery store with two registers

5 in one line, 5 in the other

efficient production

using all your resources to produce the maximum amount of goods/services that is possible

specialization

the situation in which each person performs/specializes a task that hr or she is good at performing; aka division of labor

when markets don’t achieve efficiency on its own, __________ intervention can improve society’s welfare

government

trade

exchange of goods and services between buyers and sellers

how does trade benefit the economy?

it allows for better allocation of resources

globalization

increase of flow of goods and services across national borders

trade barriers

tarrifs & quotas, things that attach money to importing/exporting goods

At what cost does globalization come at?

• bad for small business owners

• dependence on other countries

• political relations