MicroEconomics - Scarcity, Choice, and Opportunity Costs

Unit 1, Lesson 1

scarcity

the fact that there is a limited amount of resources to satisfy unlimited wants

economic resources

things that are inputs to production of goods and services

economic resources (examples)

land, labor, capital, and technology/entrepreneurship

land

natural resources used in the production of goods and services

land (examples)

lumber, raw materials, fish, soil, minerals, energy resources

labor

work effort used in the production of goods and services

labor (examples)

number of workers and number of hours worked

capital

physical goods that are produced and used to produce other goods

capital (examples)

machinery, technology/tools (computers, hammers, factories, robots, trucks, trains used to transport goods), other equipment employed in the production of a good or service

technology/entrepreneurship

the ability to combine the other productive resources into goods and services

Occam’s razor

the logical principle that states you should make no more assumptions than the minimum amount needed to perform analysis. used when invoking ceteris paribus assumption

ceteris paribus

means “all else equal”, emphasizes that the only changes you should be thinking of making are the ones that are explicitly described.

normative statements

statements that describe opinions or how things ought to bepo

positive statements

statements of fact of description of how something actually is

model

a simplification of a concept or process that is used to better understand that process by cutting away as much possible to focus on key aspects

opportunity cost

how much of another good/service/activity must be given up in order to pursue/produce another activity/good

fundamental economic problem

unlimited wants, limited resources

rivalrous

In order to be scarce it must be rival in consumption, therefore it must be non-rival in order to not be scarce. A resource is rival if one person’s consumption interferes with someone else’s ability to consume it. If a good is rival, one person using it means another person cannot also use it, leading to scarcity.

when is a good nonrival

A good is nonrival if its consumption doesn’t interfere with another agent’s ability to also consume it. Information is not used up when it is consumed, so when someone uses information it doesn’t prevent someone else from using the same information. For example, when you watch a video on Khan Academy for your Microeconomics exam, it doesn’t stop any of your friends from watching the same video at the same time.