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Define economics b. Explain economic core concepts c. Identify and discuss the significance of the key points of the production possibilities model d. Use real-world examples to explain the law of increasing opportunity costs Economics defined a. The economic perspective i. Scarcity and choice 1. There are not enough resources (inputs) available to produce all of the goods and services that society would like to consume 2. Opportunity costs: the economic cost of something is the next best thing you must give up to get it a. You can’t have it all b. Scarcity results in sacrifices ii. Purposeful behavior 1. Self-interest: the choices that are best for the individual who makes them 2. Selfishness and selflessness a. How might selfish behavior benefit the economy? b. How might selfless behavior benefit the economy? 3. Marginal analysis (see the additional example provided in course content – module 1) a. The margin: a choice on the margin is a choice that is made by comparing all the relevant alternatives incrementally b. Marginal cost: the opportunity cost that arises from a one-unit increase in an activity c. Marginal benefit: the benefit that arises from a one-unit increase in an activity 4. Helpful hints a. Recognize that economic principles are generalizations – they identify how a “typical” producer or consumer behaves b. Assume ceteris paribus – isolate variables and simplify your economic analysis c. Use graphical expressions – visually depict complex economic relationships b. The economic way of thinking for the individual i. An individuals’ reality 1. Individuals have limited resources
Society evaluates the utility generated by every decision 3. Key points 1. Fixed resources 3. Individuals’ evaluate the opportunity cost of every decision 2. Society’s decision-making process 1. Labor i. Necessities b. Quantity – number of workers in the workforce ii. a. An individuals’ decision-making process 1. The economic way of thinking for society i. Luxuries 3. Quality – skills of the workforce iii. Why is it important to differentiate between the quantity of labor available to society and the quality of labor available to society? c. Individuals’ evaluate the marginal cost and marginal benefit of every decision c. Fixed technology 4. Individuals have budget constraints ii. Time 2. Points that fall on the PPC a. Capital d. Land b. Full employment 2. Resources are fully employed . Individuals’ evaluate the utility generated by every decision 3. Individuals have unlimited wants a. Two goods ii. Initial assumptions 1.III. Income b. Entrepreneurial ability 2. Society has unlimited wants ii. Society evaluates the marginal cost and marginal benefit of every decision The production possibilities model (see the additional example provided in course content – module 1) a. Production possibilities (PPC) defined: the alternative combinations of goods and services that can be produced (in a given time period) if all of society’s resources are used efficiently i. Society evaluates the opportunity cost of every decision 2. Society has limited economic resources a. Society’s reality 1.
A growing economy ii. Points that lie outside the PPC a. the greater is the opportunity cost of obtaining an extra unit c. Scarcity – the curve is a “constraint” ii. Represents maximum output of the two products c. Consider satisfying future needs/wants b. A shrinking economy . Shifting the PPC i. Increased production is possible with the inputs available c. Law of increasing opportunity costs – the more of a product that society produces. Additional resources are needed 4. An inefficient outcome 3. A graphical representation of scarcity and choice i.b. Points that lie inside the PPC a. Resources are not fully employed b. Choice – when resources are fully employed increased production of one good means decreased production of the second good iii. An efficient outcome 2. Consider satisfying current needs/wants b. Optimal points a. Production at this level is unattainable with the inputs available b.