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Chapter 3 SG - Chapter 3 The Fundamental Economic Problem...

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Chapter 3 – The Fundamental Economic Problem: Scarcity and Choice Scarcity, Choice, and Opportunity Cost Resources are the instruments provided by nature or by people that are used to create goods and services. Natural resources include minerals, soil, water, and air. Labor is a scarce resource, partly because of time limitations (the day has only 24 hours) and partly because the number of skilled workers is limited. Factories and machines are resources made by people. These three types of resources are often referred to as land, labor, and capital. They are also called inputs or factors of production. Virtually all resources are scarce , meaning that humans have less of them than we would like. Therefore, choices must be made among a limited set of possibilities, in full recognition of the inescapable fact that a decision to have more of one thing means that we will have less of something else. The opportunity cost of any decision is the value of the next best alternative that the decision forces the decision maker to forgo. Opportunity Cost and Money Cost o If the market functions well, goods that have high opportunity costs will also have high money costs. In turn, goods that have low opportunity costs will also have low money costs.
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