Economic Questions

I) Why Economics?

Why do we need Economics?

Why does Economics exist?

What is Economics?

a) Scarcity• The world is

composed of finite (limited) resources.

• There’s not enough of each resource to accommodate all people

b) Unlimited Wants• Human beings are by

nature insatiable.• We are not satisfied

by sustenance (needs).• We often want more

than we need to survive (greed).

c) Choices• Because people must

compete over scarce resources, choice necessarily follows.

• People must choose between different wants.

d) Allocation• Economics is the

study of how society allocates (distributes) its scarce resources among its unlimited wants and needs.

II) Costs & Benefits

a) Opportunity Cost• The value of any

alternative that you must give up.

• What you lose when you choose.

b) Opportunity Benefit• What is gained by

making a particular choice.

• What you gain when you choose.

III) Three Economic Questions

a) What to Produce?• 1) Limited

resources means that choices must be made

• 2) Must weigh opportunity costs against opportunity benefits.

b) How to Produce?• 1) Labor intensive

vs. capital intensive.

• 2) Must weigh opportunity costs against opportunity benefits

c) For whom to produce• 1) How will goods

& services be allocated among people.

• 2) Will it be according to ability (market), or by need (command).

IV) Levels of Economics

There are two different levels

of Economics.

a) Microeconomics• 1) Economics on a

personal or individual level.

• 2) What would this firm need to do to increase its profits?

b) Macroeconomics• 1) Economics on a

national or global scale.

• 2) What effect does NAFTA have on international trade?