Scarcity & Choice
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This 2 page Class Notes was uploaded by Samantha jose on Saturday February 6, 2016. The Class Notes belongs to 101 at Washington State University taught by Dr. Love in Fall. Since its upload, it has received 38 views. For similar materials see Microeconomics in Economcs at Washington State University.
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Date Created: 02/06/16
Scarcity and Choice - Choices are necessary because resources are scarce • An economy is a system for coordinating a society’s productive and consumptive activities. • In a marketing economy, the decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions. Resource: anything that can be used to produce something else. Scarce: in short supply; a resource is scarce when there is not enough of the resource available to satisfy all the various ways a society wants to use it. What causes economic growth? • Two possibilities o 1. An increase in factors of production: resources used to produce goods and services o 2. Better technology: the technical means for producing goods and services 1. Land includes natural resources (water, air, oil) 2. Labor the effort of workers 3. Physical Capital is manufactured items used to produce goods and services 4. Human Capital: is the educational achievements and skills of the labor force (which increase labor productivity) Opportunity Cost • The true cost of something is its opportunity cost • What you must give up in order to get something o Waiting in line, you are giving up your time to get what you want Positive vs. Normative Economics Positive economics: the branch of economics analysis that describes the way the economy actually works Normative economics: makes prescriptions about the way the economy should work When and Why economics Disagree * Media coverage tends to exaggerate the real difference in views among economists * Economics is often tied up in politics • powerful interest groups find and promote economists who profess supportive opinions * Economic modeling requires simplifying assumptions • two economists can legitimately disagree about which simplification are appropriate Micro vs. Macro Microeconomics: is the study of how people make decisions and how those decisions interact Macroeconomics: is concerned with the overall ups and downs in the economy Economic Aggregate: are economic measures that summarize data across many different markets Models in Economics Model: a simplified representation of a real situation that is used to better understand real life situations “Other Things Equal” • All other relevant factors remain unchanged Circular-Flow Diagram: • Production and trade in an economy can be represented by the circular-flow diagram Economy-wide interaction: • One person’s spending is another person’s income. • During recessions, a drop in business spending leads to: o Less income, less spending • Further drops in business spending, layoffs, and rising unemployment
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