Economic Questions

I) Why Economics? Why do we need Economics? Why does Economics exist? What is Economics?

a) Scarcity The world is composed of finite (limited) resources. There’s not enough of each resource to accommodate all people

b) Unlimited Wants Human beings are by nature insatiable. We are not satisfied by sustenance (needs). We often want more than we need to survive (greed).

c) Choices Because people must compete over scarce resources, choice necessarily follows. People must choose between different wants.

d) Allocation Economics is the study of how society allocates (distributes) its scarce resources among its unlimited wants and needs.

II) Costs & Benefits

a) Opportunity Cost The value of any alternative that you must give up. What you lose when you choose.

b) Opportunity Benefit What is gained by making a particular choice. What you gain when you choose.

III) Three Economic Questions

a) What to Produce? 1) Limited resources means that choices must be made 2) Must weigh opportunity costs against opportunity benefits.

b) How to Produce? 1) Labor intensive vs. capital intensive. 2) Must weigh opportunity costs against opportunity benefits

c) For whom to produce 1) How will goods & services be allocated among people. 2) Will it be according to ability (market), or by need (command).

IV) Levels of Economics There are two different levels of Economics.

a) Microeconomics 1) Economics on a personal or individual level. 2) What would this firm need to do to increase its profits?

b) Macroeconomics 1) Economics on a national or global scale. 2) What effect does NAFTA have on international trade?