Scarcity

economics

the science of scarcity/study of choices (how ppl & societies deal w/ scarcity)

idea of scarcity

• unlimited wants but limited resources

• must make choices abt how to use resources

microeconomics

study of small economic units such as individual ppl, firms, & markets

macroeconomics

study of large economy as a whole or economic aggregates

use of economics

• economists use scientific method to make generalizations & abstracts to develop theories (theoretical economics)

• theories are applied to fix prblms or meet ec. goals (policy economics)

positive statements

based on facts

avoids value judgements

normative statements

includes value judgements (what should be)

5 economic assumptions

1. society has unlimited wants & limited resources

2. due to scarcity choices must be made. Every choice has a cost

3. everyone’s goal is to make choices that maximize their satisfaction, they act in own self intrest

4. everyone makes decisions by comparing the marginal costs and marginal benefits of every choice

5. real-life situations can be explained & analyzed through simplified models & graphs

marginal analysis

making decisions based on increments

trade-offs

all of the alternatives given up when we make a choice

opportunity cost

most desirable alternative given up when you make a choice

utility

satisfaction

marginal

additional

price

amount buyer pays

cost

amount seller pays to produce a good

investment

money spent by businesses to improve their production

consumer goods

created for direct consumption

capital goods

created for indirect consumption (make cons. goods)

4 factors of production

land, labor, capital. entrepreneurship

land

all natural resources used to produce goods & services

labor

any effort a person devotes to a task for which they are paid

capital

• physical - any human made resource used to create other goods & services

• human - any skills or knowledge gained by a worker through education and experience

entrepreneurship

ambitious leaders that combine the other factors of production to create goods and services

productivity

measure of the efficiency that shows the number of outputs per unit of input

• improving productivity = more stuff produced w/ less resources