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