Econ Chapter 1: What is Economics?

- Notes

Economics - Choices
All about what we have and what we don’t

Unlimited
 Needs - Something essential for survival (food, water, shelter, medical care)
 Wants - Something that people desire but that is not necessary for survival (video
games, cars, clothing)

Limited
 Goods - the physical objects that someone produces (Inuit pie, desk, phone, computer,
DVD, pencil)
 Services - the actions or activities that one person performs for another (massage, oil
change, mowing)

US is 70-75% service oriented 

** The fact that limited amounts of goods and services are available to meet unlimited needs
and wants is called SCARCITY
** Scarcity forces people to make choices **

Economics - The Study of how people seek to satisfy their needs and wants by making choices

Trade-Offs and Opportunity Costs

 Every time we CHOOSE to do something, we give up the opportunity to do something
else
 Trade-Off - The act of giving up one benefit in order to gain another 
- can be money, time, peace of mind, etc
- Businesses make the same trade-offs
- Government = “Guns or Butter” - the economic decision governments must make
between military and consumer spending
** Trade-Offs stem from Scarcity

Opportunity Costs
 Opportunity Cost - the most desirable alternative given up as a result of a choice (2nd
choice)
- How do we determine opportunity cost?...Decision making grids are helpful or we can
Think at the Margin

Thinking at the Margin (think +1)

 Thinking at the Margin - the process of deciding whether to do or use one additional unit
of some resource
- Designed to perform the cost-benefit analysis - the decision making process
- Measuring Marginal Costs vs. Marginal Benefits
 Marginal Cost - the extra cost of adding one unit
 Marginal Benefit - the extra benefit of adding one unit