(ECO) Economics - Today and Tomorrow © 2008

(ECO) Economics - Today and Tomorrow ©...

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Economics: Today and Tomorrow © 2008 Chapter 1: What Is Economics? Chapter Overviews Section   1:   The   Basic   Problem   in   Economics Economics   is   defined   as   how   individuals,   families,   businesses,   and   societies   use   limited  resources to fulfill their unlimited wants. In society, there is a significant difference between  needs and wants. Individuals have basic essential needs to survive: food, clothing, shelter. On the  contrary, everything else is considered a want, which means not essential to survive. Throughout  history, scarcity has prevented people from satisfying their needs and wants. Scarcity means that  people do not and cannot have enough income and time to satisfy their every want; therefore,  people are forced to make choices about how they will use their resources. Scarce resources are  divided into four general categories of resources needed in the production of all goods and  services: land, labor, capital, and entrepreneurship. Some economists add technology to the list  of factors of production. Section   2:   Trade-Offs Combining trade-offs and opportunity cost is essential in making smart economical decisions. A  trade-off is exchanging one thing for another. The cost of a trade-off is what you give up in order  to get or do something else. Opportunity cost is the value of the next best alternative given up for  the alternative that was chosen. Economists use a model called the production possibilities curve  to show the maximum combinations of goods and services that can be produced from a fixed  amount of resources in a given period of time. This curve can help determine how much of each  item to produce, thus revealing the trade-offs and opportunity costs involved in each decision. Section   3:   What   Do   Economists   Do? Economists   construct   models   to   investigate   the   way   that   economic   systems   work.   The  economists test the models in order to determine if it is a good representation of reality.  Competing economic theories are supported by economists from different schools of thought.  Chapter 2: Economic Systems and the American Economy Chapter Overviews Section   1:   Economic   Systems The way a nation determines how to use its resources to satisfy its people’s needs and wants is  called an economic system. Each type of system is labeled according to how it answers the basic 
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Economics: Today and Tomorrow © 2008 economic questions of WHAT, HOW, and FOR WHOM to produce. The major economic  systems in use today are traditional, command, market, and mixed. Section
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(ECO) Economics - Today and Tomorrow ©...

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