1. Economics Unit 1 Notes

2. Economic Choices Economics: the study of how we make decisions in the world where resources are limited. Scarcity: forces you to make a choice If there is not enough of a product, scarcity happens Wants verses Needs: Needs you must have, wants you CAN live without

3. Trade-Offs A trade-off is the alternative you face if you decide to do one thing over the other. Opportunity cost is what you cannot buy or do when choosing to do one thing rather than another. Incentives are rewards offered to try to get people to take certain economic actions. Example: You are offered a new cell phone every two years a discount, why?

4. Costs The added cost of producing one additional unit is the marginal cost. Variable costs are expenses that increase as production grows. Fixed costs remain the same regardless of the number of units produced. Variable Costs + Fixed Costs = Total Costs

5. Costs/Benefits The additional benefit associated with an action is the marginal benefit. A cost-benefit analysis requires you to compare the marginal costs and marginal benefits of a decision

6. Choices and Markets A rational choice is choosing the alternative that has the greatest value from among comparable-quality products. In a capitalist system, private citizens own most, if not all, of the means of production. Economists use economic models to test solutions to questions for which there are no obvious or easy answers.

7. Markets A free enterprise system allows businesses to compete for profit with a minimum of government interference. In a market economy, most economic decisions are made by individuals looking out for their own interests.