Document 6523885

Economic choices

We are faced with choices because we
do not have enough productive
resources to satisfy all of our wants and
needs.

Economics: the study of how we make
decisions in a world where resources
are limited.
Need or want?

Needs
Required for survival
Wants

Things we would like to
have

The fundamental economic problem is
scarcity (when we do not have enough
resources to produce all of the things we
would like to have).
Trade-offs
 Have
to take all aspects of
transactions into account
 Ex: you trade money to buy a
product
 Opportunity
cost is the next
best thing that you had to give
up for the choice you made
(includes money and
inconveniences)
 Fixed
costs do not change no
matter how much is produced
 Variable costs change w/the
amount produced
Fixed
Costs +
Variable
Costs=Total Cost
 Marginal
cost is the cost of
producing one more unit of
output.
 Businesses look at total and
marginal cost to determine
final cost
Cost-Benefit analysis
 Econ.
model that compares
marginal costs and benefits
 Benefits should outweigh the
costs when making decisions
Your role in the economy
 U.S.
has a market economy
 Choices you make affect
choices businesses make (like
what to make or how much to
charge)
 Market
economies are based
on capitalism and free
enterprise
 Incentives try to persuade
people to make certain
economic decision
Making wise choices
 Rational
choice involves
consumer’s perceptions
 Benefits society by making the
best use of scarce resources