Economics Notes - The Central Idea 1/8/2008 12:55:00 PM...

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

View Full Document Right Arrow Icon
The Central Idea 08/01/2008 12:55:00 People make purposeful choices with scarce resources and interact with others  when they make these choices Economics  is the study of how people deal with scarcity Scarcity  is a situation in which people’s resources are limited  Implies that people must make a choice to give up one thing in favor of  another  Economic interactions  occur whenever people trade or exchange goods  with each other  Markets  are where economic interactions generally take place; it is an  arrangement by which buyers and sellers can interact and exchange goods  and service with each other (New York stock market, flea markets, etc.) SCARCITY AND CHOICE FOR INDIVIDUALS Consumer Decisions Opportunity cost : the value of the next-best forgone alternative that was not  chosen because something else was chosen o A budget constraint forces people to make choices o Example: The opportunity cost of going to an 8 A.M. class rather than  sleeping in is the sleep you lose when you get up early Gains from trade : improvements in income, production, or satisfaction owing  to the exchange of goods or services  Producer Decisions Specialization : a concentration of production effort on a single specific task  (people concentrating their production efforts on what they are good at)
Background image of page 1

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

View Full DocumentRight Arrow Icon
Division of labor : the division of production into various parts in which  different groups of workers specialize Comparative advantage : a situation in which a person or group can produce  one good at a lower opportunity cost than another person or group (if that  person or group can produce that good with comparatively less time, effort, or  resources than another person or group can)  International Trade International trade : the exchange of goods and services between people or  firms in different nations People can better satisfy their preferences for goods or they can better utilize  their comparative advantage  Review All individuals face scarcity in one form or another. Scarcity forces people to  make choices. When a choice is made, there is also an opportunity cost of  not doing one thing because another thing has been chosen. People benefit from economic interactions with other people. Gains from trade occur because goods and services can be allocated in ways  that are more satisfactory to people. Gains from trade also occur because trade permits specialization through the 
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.

This note was uploaded on 04/01/2008 for the course ECON 101 taught by Professor Gerson during the Spring '08 term at University of Michigan.

Page1 / 11

Economics Notes - The Central Idea 1/8/2008 12:55:00 PM...

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