Chapter 1

What are four ways to think like an economist?

1. all choices entail opportunity costs 2. decisions are made at the margin 3. incentives matter 4. trade creates value

What is economics?

Economics is the study of how people allocate their limited resources to satisfy their nearly unlimited wants. Because of the limited nature of society's resources, even the most abundant resources are not always plentiful enough everywhere to meet the wants and needs of every person. Economics is not a dismal science.

Markets

bring buyers and sellers together to exchange goods and services

Incentives

factors that motivate a person to act or exert effort

Specialization

occurs when someone focuses his or her skills to become an expert in a particular area

Economic thinking

requires a purposeful evaluation of the available opportunities to make the best decision possible

Marginal thinking

requires decision-makers to evaluate whether the benefit of one more unit of something is greater than its cost

Economists

study how decisions are made

Opportunity cost

the highest-valued alternative that must be sacrificed in order to get something else

Scarcity

the limited nature of society's resources, given society's unlimited wants and needs

Comparative advantage

the situation in which an individual, business, or country can produce at a lower opportunity cost than a competitor can

Economics

the study of how people allocate their limited resources to satisfy their nearly unlimited wants

Microeconomics

the study of the individual units that make up the economy

Macroeconomics

the study of the overall aspects and workings of an economy (inflation, growth, employment, interest rates, and the productivity of the economy as a whole)

Trade

the voluntary exchange of goods and services between two or more parties