1. Chapter 1 Section 3

2. Trade-offs and Opportunity Costs  Trade-offs are the alternative choices people face in making an economic decision. A decision- making grid lists the advantages and disadvantages of each choice.

3.  Opportunity cost is the cost of the next best alternative among a person’s choices. The opportunity cost is the money, time or resources a person gives up, or sacrifices, to make his final choice

4. Production Possibilities  The production possibilities frontier diagram illustrates the concept of opportunity cost. It shows the combinations of goods and services that can be produced when all productive resources are use. The line on the graph represents the full potential (frontier) when the economy employs all of these productive resources.

5.  Identifying possible alternatives allows an economy to examine how it can best put its limited resources into production.  Considering different ways to fully employ its resources allows an economy to analyze the combination of goods and services that leads to maximum output.

6.  An economy pays a high cost if any of its resources are idle.  Economic growth is made possible by more resources, a larger labor force, or increased productivity.

7. Thinking like an Economist  Building simple models helps economists analyze actual economic situations.  Cost-benefit analysis steps in implementing an economic decision helps economists test whether the estimated cost of the decision was correct.

8.  Taking small, incremental steps helps economist test whether the estimated cost of the decision was correct.

9. The Road Ahead  Studying economics will help us know how the economy works on a daily basis.  Free enterprise economy-people and privately owned businesses rather than the government make the majority of the economic decisions.

10.  The study of economics helps us become better decision makers.  The world of economics is complex and dynamic, as is our society.