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    What Is Economics?

    What Is Economics?

    What Is Economics? Scarcity and Choice

    Throughout this module you’ll encounter short videos that explain complex economic concepts in very simple terms. Take the time to watch them! They’ll help you master the basics before heading to the readings (which tend to cover the same information in more depth).

    As you watch the video, consider the following key points:

    Economics is the study of how humans make choices under conditions of scarcity.

    Scarcity exists when human wants for goods and services exceed the available supply.

    People make decisions in their own self-interest, weighing benefits and costs.

    Understanding Scarcity and Economics

    Scarcity

    The resources that we value—time, money, labor, tools, land, and raw materials—exist in limited supply. There are simply never enough resources to meet all our needs and desires. This condition is known as scarcity.

    At any moment in time, there is a finite amount of resources available. Even when the number of resources is very large, it’s limited. For example, according to the U.S. Bureau of Labor Statistics, in 2016, the labor force in the United States contained more than 158 million workers—that’s a lot, but it’s not infinite. Similarly, the total area of the United States is 3,794,101 square miles—an impressive amount of acreage, but not endless. Because these resources are limited, so are the numbers of goods and services we can produce with them. Combine this with the fact that human wants seem to be virtually infinite, and you can see why scarcity is a problem.

    Economics

    When faced with limited resources, we have to make choices. Again, economics is the study of how humans make choices under conditions of scarcity. These decisions can be made by individuals, families, businesses, or societies.

    Let’s consider a few decisions that we make based on limited resources. Take the following:

    1. What classes are you taking this term?

    Are you the lucky student who is taking every class you wanted with your first-choice professor during the perfect time and at the ideal location? The odds are that you have probably had to make trade-offs on account of scarcity. There is a limited number of time slots each day for classes and only so many faculty available to teach them. Every faculty member can’t be assigned to every time slot. Only one class can be assigned to each classroom at a given time. This means that each student has to make trade-offs between the time slot, the instructor, and the class location.

    2. Where do you live?

    Think for a moment, if you had all the money in the world, where would you live? It’s probably not where you’re living today. You have probably made a housing decision based on scarcity. What location did you pick? Given limited time, you may have chosen to live close to work or school. Given the demand for housing, some locations are more expensive than others, though, and you may have chosen to spend more money for a convenient location or to spend less money for a place that leaves you spending more time on transportation. There is a limited amount of housing in any location, so you are forced to choose from what’s available at any time. Housing decisions always have to take into account what someone can afford. Individuals making decisions about where to live must deal with limitations of financial resources, available housing options, time, and often other restrictions created by builders, landlords, city planners, and government regulations.

    The Problem of Scarcity

    Every society, at every level, must make choices about how to use its resources. Families must decide whether to spend their money on a new car or a fancy vacation. Towns must choose whether to put more of the budget into police and fire protection or into the school system. Nations must decide whether to devote more funds to national defense or to protecting the environment. In most cases, there just isn’t enough money in the budget to do everything.

    Economics helps us understand the decisions that individuals, families, businesses, or societies make, given the fact that there are never enough resources to address all needs and desires.

    The Concept of Opportunity Cost

    The Idea of Opportunity Cost

    Since resources are limited, every time you make a choice about how to use them, you are also choosing to forego other options. Economists use the term opportunity cost to indicate what must be given up to obtain something that’s desired. A fundamental principle of economics is that every choice has an opportunity cost. If you sleep through your economics class (not recommended, by the way), the opportunity cost is the learning you miss. If you spend your income on video games, you cannot spend it on movies. If you choose to marry one person, you give up the opportunity to marry anyone else. In short, opportunity cost is all around us.

    The idea behind opportunity cost is that the cost of one item is the lost opportunity to do or consume something else; in short, opportunity cost is the value of the next best alternative.

    Source : courses.lumenlearning.com

    Economics Assignement (1

    This is the COMPLETED flashcards for the quiz on 9/23/2014 Learn with flashcards, games, and more — for free.

    Economics Assignement (1-2)

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    Economics

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    the study of how individuals and societies make choices under the condition of scarcity.

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    Scarcity

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    is a condition that exists when there are not enough resources to satisfy all of the competing uses.

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    1/38 Created by Person4525

    This is the COMPLETED flashcards for the quiz on 9/23/2014

    Terms in this set (38)

    Economics

    the study of how individuals and societies make choices under the condition of scarcity.

    Scarcity

    is a condition that exists when there are not enough resources to satisfy all of the competing uses.

    Factors of Production

    also known as resources, they are the things used to produce goods and services

    Labor or Human Resources

    includes the physical and mental capabilities of individuals used in the production of goods and services.

    Land or Natural Resources

    land includes all type of natural resources such as physical land, timer, water, oil, minerals, and plants.

    Capital Resources

    this includes machines, infrastructure, equipment, and tools. Some examples include trucks, factories, copy machines, etc.

    Microeconomics

    study of how individuals, households, and businesses make choices.

    Macroeconomics

    study of the aggregated or total behavior of the economy

    Opportunity Cost

    is the value of the next best alternative other than the choice that was made.

    Trade-Offs

    they occur when you give up something to gain something else.

    Unintended Consequences

    an outcome that is not expected

    Marginal Benefit

    is the additional positive outcome resulting from an action

    Marginal Cost

    is the additional price resulting from an action

    Incentives

    an idea/item/etc. that helps convince or influence someone to do something

    Private Ownership

    means that individuals are allowed to own property and use it in any legal way they see fit. The most common types of properties are land, houses, and businesses, like farms or factories.

    Command Economies

    this is when the government almost or completely controls the economies by deciding what goods consumers can buy

    Traditional Economies

    people often do "what has always been done

    Mixed Economies

    this combines characteristics from a command economy and a market economy where individuals and the government decide what kind of business, goods, and services they want to have/buy.

    Adam Smith

    Adam Smith is the author of "The Wealth of Nations" and is known as the "father of economics"

    Households

    place where a family lives where, consumers analyze their choices based on their expected income and determine the best combination of goods they can afford.

    Firms

    these have to decide what resources to buy from the market and what goods and services to produce and sell to households

    Maximize Satisfaction

    consumers analyze their choices based on their expected income and determine the best combination of goods they can afford.

    Utility

    is the advantage, or fulfillment, a person obtains from consuming a good or service.

    Market Economy

    this is an economy where the people decide what goods/services to support using their own money instead of having the government do it

    Incentives

    rewards that help people do a certain task

    Consumer Sovereignty

    to succeed, businesses must produce goods and services that consumers are willing and able to buy

    Entrepreneurs

    an enterprising person that has what it takes to lead a business from an idea all the way to a final product or service that you can buy.

    Revenue stream of money Standard of Living

    when a person is living healthy with a decent amount of wealth

    Human Capital

    this is the total amount of experience, knowledge, skills, etc. that a typical group/person/population has

    Capital goods

    items that helps produce other items faster, more efficient, cheaper, etc.

    Price system

    is a component of any economic system that uses prices expressed in any form of money for the valuation and distribution of goods and services and the factors of production

    Law of Supply

    is the willingness and ability to bring to market (produce and/or sell) specific amounts of a good or service at different prices in a specific time period, considering all things remain the same.

    Law of Demand

    is the willingness and ability to buy specific quantities of a good or service.

    Equilibrium

    a balance where two things in capital equal one such as supply and demand

    Elasticity

    when an object is able to change

    Price Ceilings

    these regulations help people that are poor and can't afford resources for their family

    Price Floors

    when something is auctioned, this is the minimum price

    Recommended textbook explanations

    Economics: Concepts and Choices

    1st Edition MCDOUGAL LITTEL 868 explanations

    Principles of Economics

    7th Edition N. Gregory Mankiw 822 explanations Economics 1st Edition

    Arthur O'Sullivan, Grant Wiggins, Steven M. Sheffrin

    Source : quizlet.com

    Lesson summary: Introduction to Macroeconomics (article)

    **economics** | the study of how individuals and societies choose to allocate scarce resources. **scarcity** | the fact that there is a limited amount of resources to satisfy unlimited wants. **economic resources** | also called the factors of production; these are the land (natural resources such as minerals and oil), labor (work contributed by humans), capital (tools, equipment, and facilities), and entrepreneurship (the capacity to organize, develop and manage a business) that individuals and business firms use in the production of goods and services. **models** | graphical and mathematical tools created by economists to better understand complicated processes in economics. ** *ceteris paribus* ** | a Latin phrase meaning "all else equal". **economic agent** | some entity making a decision; this can be an individual, a household, a business, a city, or even the government of a country. **incentives** | rewards or punishments associated with a possible action; agents make decisions based on incentives. **rational decision making** | an agent is "rational" if they use all available information to choose an action that makes them as well off as possible; economic models assume that agents are rational. **positive analysis** | analytical thinking about objective facts and cause-and-effect relationships that are testable, such as how much of a good will be sold when a price changes. **normative analysis** | unlike positive analysis, normative analysis is subjective thinking about what we should value or a course of action that should be taken, such as the importance of environmental factors and the approach to managing them. **microeconomics** | the study of the interactions of buyers and sellers in the markets for particular goods and services. **macroeconomics** | the study of aggregates and the overall commercial output and health of nations; includes the analysis of factors such as unemployment, inflation, economic growth and interest rates. **economic aggregates** | measures such as the unemployment rate, rate of inflation, and national output that summarize all markets, rather than individual markets; economic aggregates are frequently used as measures of the economic performance of an economy. **aggregates** | in economics, aggregate measures are top-level measures that are the combination of many individual measures; for example, the price level is an aggregate measure that is a composite of all of the individual prices within an economy.

    Scarcity

    Lesson summary: Introduction to Macroeconomics

    This article summarizes the learning objectives and essential knowledge for the lesson on Scarcity. Here you will find key terms, key concepts, common misperceptions, and discussion questions to help you review what you have learned.

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    If you want to sum up what economics means, you could do so with the following statement:

    Individuals and societies are forced to make choices because most resources are scarce.Economics is the study of how individuals and societies choose to allocate scarce resources, why they choose to allocate them that way, and the consequences of those decisions.Scarcity is sometimes considered the basic problem of economics. Resources are scarce because we live in a world in which humans’ wants are infinite but the land, labor, and capital required to satisfy those wants are limited. This conflict between society’s unlimited wants and our limited resources means choices must be made when deciding how to allocate scarce resources.

    Any economic system must provide society with a means of making choices that answer three basic questions:

    What will be produced with society’s limited resources?

    How will we produce the things we need and want?

    How will society’s output be distributed?

    Key Terms

    Term Definition

    economics the study of how individuals and societies choose to allocate scarce resources.scarcity the fact that there is a limited amount of resources to satisfy unlimited wants.economic resources also called the factors of production; these are the land (natural resources such as minerals and oil), labor (work contributed by humans), capital (tools, equipment, and facilities), and entrepreneurship (the capacity to organize, develop, and manage a business) that individuals and businesses use in the production of goods and services.models graphical and mathematical tools created by economists to better understand complicated processes in economics. ceteris paribus a Latin phrase meaning "all else equal".agent some entity making a decision; this can be an individual, a household, a business, a city, or even the government of a country.incentives rewards or punishments associated with a possible action; agents make decisions based on incentives.rational decision making an agent is "rational" if they use all available information to choose an action that makes them as well off as possible; economic models assume that agents are rational.positive analysis analytical thinking about objective facts and cause-and-effect relationships that are testable, such as how much of a good will be sold when a price changes.normative analysis unlike positive analysis, normative analysis is subjective thinking about what we should value or a course of action that should be taken, such as the importance of environmental factors and the approach to managing them.microeconomics the study of the interactions of buyers and sellers in the markets for particular goods and servicesmacroeconomics the study of aggregates and the overall commercial output and health of nations; includes the analysis of factors such as unemployment, inflation, economic growth and interest rates.economic aggregates measures such as the unemployment rate, rate of inflation, and national output that summarize all markets in an economy, rather than individual markets; economic aggregates are frequently used as measures of the economic performance of an economy.

    Models and graphs

    Economics is a social science. This means that economists, in their study of human interactions, use models to simplify, analyze, and predict human behavior. Models include graphs and mathematical models.

    The purpose of these graphs and mathematical models is to simplify the many interactions that occur in an economy. In their use of models, economists usually make the assumption, when analyzing the effect of a particular change on a market or on a nation’s economy, that all else is held constant. The term we use for “all else equal” is the Latin expressions, ceteris paribus.

    Another assumption economists make is that economic agents are rational and have an incentive to make decisions that are always in their own self-interest. While in reality human beings often act irrationally, by assuming people, businesses, governments, and other agents are rational decision-makers, and by assuming ceteris paribus, economists attempt to establish laws and make predictions about how human interactions will affect society.

    When thinking about economic problems, we can use either positive analysis or normative analysis. Positive analysis is objective, fact-based, and cause-and-effect thinking about problems. When economists disagree it is typically due to different normative analysis. When using normative analysis, the focus is on what should happen or how desirable one action is compared to a different action.

    The study of economics is sometimes broken down into two disciplines: microeconomics and macroeconomics. Microeconomics examines the interactions of buyers and sellers in individual markets for goods and services, the competitive structure of markets, and the markets for resources. Macroeconomics examines the interactions and behavior of entire nations' economies, such as why recessions occur, what causes economic growth, and how countries can benefit from specialization and trade.

    Source : www.khanacademy.org

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