Chapter 18: What is Economics?
scarcity
not having enough resources to to produce all of the things we would like to have
total revenue
number of units sold multiplied by the average price per unit
marginal cost
the additional cost of producing one additional unit of output
marginal benefit
the additional or extra benefit associated with an action
trade-off
the alternative you face if you decide to do one thing rather than another
marginal revenue
the change in total revenue, the EXTRA revenue, that results from selling one more unit of output
opportunity cost
the cost of the next best use of your time or money when you choose to do one thing rather than another; there's always an opportunity that is given up
economics
the study of how we make decisions in a world in which resources are limited
resources
the things used in making goods and providing services
economic model
a theory that tries to explain human econmoic behavior
cost-benefit analysis
economic model that compares the marginal costs and benefits of a decision
free enterprise capitalism
economic system the United States has; businesses are allowed to compete for profit with a minimum of government interference
fixed costs
expenses that are the same no matter how many units of a good are produced; examples: mortgage parments and property taxes
variable costs
expenses that change with the number of items produced; increase as production grows, decrease when it decreases. examples: wages and raw materials
total cost
fixed costs+variable costs; average total cost=total cost/quantity produced
in a cost-benefit analysis, when should a chosen option be rejected?
if the costs outweigh the benefits
microeconomics
look at small picture; study behavior and decision making of small units such as individuals and businesses
macroeconomics
look at the big picture; deals with the economy as a whole and decision making by large units such as governments, whole industries, and socieities
two main types of resources
natural and human: people who provide labor, skills, and knowledge
three choices a society must make because of scarcity
what to produce- if more of one item is produced, then less of something else will be produced how to produce- allow drilling because we need oil? but then, it will pollute the land for whom to produce- society must determine how goods and services will be distributed among its members
