Economics is primarily concerned with scarcity--how we satisfy our unlimited wants in a world of
Scare/Limited Resources: capital, entrepreneurship, labor, and land (CELL).
Labor = total of both physical and mental effort in production of goods and services.
Land = natural resources used in the production of goods and services (ie. trees, animals, water,
Capital = equipment and structures used to produce goods and services (ie. office buildings,
tools, machines, factories etc.).
*Capital also includes human capital--the productive knowledge and skills people receive from
education and on-the-job training.
Entrepreneurship = process of combining labor, land, and capital to produce goods and services.
When we try new products or find better ways to manage our households or time, we are being
Goods = items we value or desire.
Goods tend to be tangible--can be seen, heard, held, tasted, or smelled.
Goods we cannot touch are called intangible goods (ie. fairness, friendship, knowledge, security,
All goods--even intangible goods--can be subjected to economic analysis.
Services = intangible acts for whic people are willing to pay (ie. legal services, medical services,
and hospital care).
All goods are produced from scarce resources and all can be subject to economic analysis.
Economic goods = scarce goods created from scarce resources (desirable but limited).
Opportunity cost = the value of the best forgone alternative that was not chosen (ie. time spent
doing something else).
Scarcity implies that there's no such thing as a free lunch.
Choices are primarily marginal--not all or nothing.
Marginal Thinking is focusing on the additional or marginal choices, which involve the effects of
adding or subtracting from the current situation--the small or large incremental changes to a plan
Example of marginal thinking = an airline selling empty seats that go for $400 for $300 because
they were empty anyway and a few extra people/baggage doesn't cost that much.
Rule of Rational Choice = people alter their behavior if the expected marginal benefits from doing
so outweigh the expected marginal costs.
The actual result of changing behavior following the rule of rational choice will not always make
people better off.