A Review of the Basics

1. Natural Resources ◦ From Earth ◦ AKA Raw Materials 2. Labor ◦ The human effort ◦ Mental and physical efforts 3. Capital ◦ Equipment ◦ Money ◦ Buildings 4. Entrepreneurship ◦ Willingness and ability to take a risk to produce goods and services

 The desire for things is greater than is freely available. ◦ There will always be scarcity, it cannot be eliminated. ◦ There is a limit to what nature can provide. ◦ People will always want more than what is available. ◦ Do the veggies vs. cattle activity

 What you give up to have what you want (a choice you make)  Example: What did you give up to take this class?

 The value of the next best alternative given up.  Choices are made based on the information available at the time of the decision.  Two types of costs ◦ Explicit—out-of-pocket funds. ◦ Implicit—costs other than dollars.  Time, doing other things.  Example: I choose to use my garage for storage rather than for parking my car. On cold days, I have to go outside and start my car. This takes time and is annoying.  Implicit costs are often greater than the explicit costs.

 What is the cost of a new car? Explicit Cost ◦ Gasoline? Implicit Cost ◦ Insurance? Implicit Cost ◦ Routine maintenance? Implicit Cost ◦ Possible repairs and/or tires? Implicit Cost  What is the opportunity cost (what you gave up) of owning a car? ◦ Where else could you spend the money? ◦ How are you going to afford a car?

 The voluntary exchange of one thing for another.  Mutually beneficial. You get something for something.  Transaction Cost: The cost of negotiating trade between the seller and the buyer.

 Click here to see example  nomics/economics2.asp nomics/economics2.asp

 List and explain an economic decision you made. Describe the explicit and implicit costs of that decision. Did you make the right decision?