Chapter 18 Section 1

What kind of government does China have? Focus Question What kind of government does China have?

Economic Choices Economics is the study of how we make decisions in a world where resources are limited. The world does not have enough production resources to satisfy our needs Scarcity plays a factor in the amount of goods that we have Economics is called the science of decision making Wants vs. needs

Scarcity Needs- something that is required for survival Water, food, clothing, shelter Wants –something we like to have to make our lives more comfortable Cars, vacations, TV Scarcity means we have the resources necessary to produce all things we wish to have We have to make choices Have alternatives Realistic expectations of what you can have

WHAT to produce? A choice about how to use resources. Improving our military or building a mall

HOW to Produce How are we going to get goods Where to get goods Take them or buy them Where to get goods Local or foreign

For WHOM to Produce How will the goods be distributed? Price system

Economic Models Simplified representations of the real world are used to explain how the economy works Predict what would happen in the economy if a particular event occurred Based on assumptions Models can be revised Rely on Hypothesis

Making Economic Decisions Section 2 Making Economic Decisions

Focus Question What is Scarcity?

Trade Offs Economic decisions should be simple if you follow a few rules Scarcity forces people to make choices about how they will use their resources Economic choice people make involved exchanging one good or service for another Money for goods Trade off-alternative you face if you decide to do one thing rather than another

Opportunity Costs Opportunity Costs Measures of Cost Cost of the next best use of your time or money when you choose to do one thing, not another Includes more than money Time Resources Measures of Cost Knowing how many things to make so you make money

Costs Fixed Costs Variable Costs Total Costs Marginal Costs Expense that are the same no matter how many units are produced Variable Costs Expense that change with number of products produced Wages and materials Total Costs Fixed and variable costs Average total costs Total cost/number produced Marginal Costs Extra or additional costs of producing one additional unit of output

Marginal Marginal revenue Marginal Benefit Cost Benefit Analysis Change in total revenue Marginal Benefit Extra benefits Cost Benefit Analysis Compare marginal costs Marginal benefits of a decision If costs are greater than the benefits then they should be rejected

Section 3

Focus Question What is Scarcity?

Your Economic Role You must be informed to be a good economic citizen Know what your money can buy We have a market economy Supply, demand, and prices help people make decisions The choices you make as a consumer affect the products business produce The prices are also affected by the consumers

Stay Informed Have an awareness of the economy Gathering information News, people, government reports

Incentives Rewards offered to persuade people to make certain economic actions Credit cards Banks Grants Subsidies Tax credit

Wise Choices Rational choices Choosing the alternative that has the greatest value from amongst comparable goods