Chapter 18 Notes What is Economics?

Bellwork Chapter 18  Define key terms on page 406

Economics  Economics is the study of how we make decisions in a world where resources are limited

Scarcity  Scarcity- when we do not have enough resources to produce all of the things we would like  Needs- things that we need to survive  Wants- things we would like to have  Because of scarcity we have to make alternative choices

WHAT to produce  With limited resources we have to choose what to produce  Do we pave the roads or build a new football stadium?  Do we make tires for cars or make toys for kids?

HOW to produce  How do I get the resources I need to produce a good?  Do we drill for oil and pollute the air and water?  Business like to produce goods as cheap as possible

For WHOM to produce  Society must determine how goods will be distributed among people  Who gets the medicine, cars, new schools, better roads, etc.

Bellwork  Definekey terms on page 416

Making Economic Decisions  Trade-off- When you decide one thing over another.  Opportunity Cost -The next best use of your time or money when you choose to do one thing rather than another.

Other Measures of Cost 1.Fixed cost 2.Variable cost 3.Total cost 4.Marginal cost 5.Marginal revenue 6.Marginal Benefit

Fixed Cost  Cost that always stay the same Example; rent or mortgage

Variable Cost  Expenses that change with the number of products produced  Examples are wages and raw materials

Total Cost  Fixed cost + variable cost = total cost  The average total cost tells you how much 1 product cost  Example if total cost is $2000 and you made 100 products divide 2000/100 =$20 for each product.

Marginal Cost  The extra cost for making 1 more unit  If it cost $2000 for 100 products and $2200 for 101 products then the marginal cost is $200

Marginal Revenue  Total revenue is the number of units sold multiplied by the price per unit  Marginal revenue is the extra revenue from selling 1 more unit

Marginal Benefit  Extra benefit associated with an action

Understanding Your Role in the Economy  Keeping informed  Understanding incentives  Understanding the role of the government  Making wise choices

Understanding Your Role in the Economy My Role Explain and examples Keep informed Understanding incentives Understanding the government Making wise choices