Economics Outline

Economics Outline - Economics Outline Chapter 3 The...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics Outline Chapter 3 The Fundamental Economic Problem: Scarcity and Choice 1. Resources a. Instruments provided by nature or people that are used to create goods and services. b. All resources are scarce meaning that humans have less of them than we would like. c. Choices must be made among a limited set of possibilities. 2. Opportunity Cost a. The opportunity cost of any decision is the value of the next best alternative that the decision forces the decision maker to forgo. b. An optimal decision is one that best serves the objectives of the decision maker. c. If the market is functioning well, goods that have high opportunity costs will also have high money costs. Goods with low opportunity costs will have low money costs. d. An optimal decision is one that is selected after implicit or explicit comparison of the consequences of each of the possible choices and that is shown by analysis to be the one that most effectively promotes her goals. 3. Scarcity and Choice for a Single Firm a. The outputs of a firm or an economy are the goods and services it produces. b. The inputs used by a firm or an economy are the labor, raw materials, electricity and other resources it uses to produce its outputs. 4. The Production Possibilities Frontier a. It shows the different combinations of various goods that a producer can turn out, given the available resources and existing technology. 5. The Principle of Increasing Costs a. It states that as the production of a good expands, the opportunity cost of producing another unit generally increases. b. It is based on the fact that resources tend to be at least somewhat specialized. 6. Scarcity and Choice for the Entire Society a. The position and shape of the production possibilities frontier that constrains society’s choices are determined by the economy’s physical resources, its skill and technology, its willingness to work, ad how much it has devoted in the past to the construction of factories, research, and innovation. 7. The Concept of Efficiency a. Economics define efficiency as the absence of waste. An efficient economy wastes none of its available resources and produces the maximum amount of output that its technology permits. b. The most important reason to having a point below the production possibilities frontier is unemployment.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
c. Inefficiency also occurs from assigning inputs to the wrong task. Also when large firms produce goods that smaller enterprises could make better because they can pay closer attention to detail, or when small firms produce outputs best suited to large-scale production. 8.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 5

Economics Outline - Economics Outline Chapter 3 The...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online