Post on 01-Apr-2015
What is Economics?
Economic Choices Citizens must make them every day. Choices occur because resources are
limited
Needs are required, such as food and shelter
Wants make life more comfortable and enjoyable, like vacations
Economic Choices (cont.)
Economics is the study of decisions made in a world of limited resources• How things are made, bought, sold and
used
Economic Choices (cont.)
Economic models include:• Microeconomics: focuses on the small
picture (individuals and businesses)• Macroeconomics: focuses on the big
picture (governments, whole industries, societies)
US functions on free enterprise capitalism-produce things their people want and need
The Problem of Scarcity Scarcity means there is not enough Scarcity of resources forces people to
make economic decisions• No country has enough resources to
produce what is necessary
The Problem of Scarcity (cont.)
Countries have to make choices:
• What to produce?
• How to produce?
• For whom to produce?
Trade-Offs People must understand the costs
and benefits of economic choices to make the best choice
A trade-off requires someone to decide to do one thing rather than another• Made by individuals, businesses, societies
Trade-Offs (cont.)
Opportunity cost is the second best use after choosing one thing over another• Includes money, time, inconveniences, and
so on
Costs and Revenues There are ways to measure different
types of costs and benefits.
Costs and Revenues (cont.)
Types of Costs:• Fixed: does not change; has to be paid no
matter what
• Variable: changes based on what is produced
• Total: fixed costs + variable costs
• Marginal: cost of producing one additional unit of output
Costs and Revenues (cont.)
Types of Revenues (money coming in)• Total revenue = number of units sold multiplied by average price per unit
• Marginal revenue: made by selling one extra unit of a product
Costs and Revenues (cont.)
Marginal benefit is an additional benefit associated with an action
Cost-benefit analysis requires rational economic decision making