SVE_SG-01 - Chapter 1 Economics: The Study of Scarcity...

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Byrns : Student Guide for Learning Contemporary Economics 1 Chapter 1 Economics: The Study of Scarcity Chapter Objectives The economic concepts presented in this chapter provide a general framework for understanding the remainder of this book. After you have read and studied this introductory chapter you should be able to explain why scarcity is the basic economic problem; describe various kinds of productive resources and the payments to the owners of these resources; discuss a number of fundamental economic concepts, including the nature of economic prices, opportunity costs, and efficiency; discuss the nature of scientific theory, including its evolution into common sense, and the use of Occam's Razor; and distinguish normative from positive economics, and macroeconomics from microeconomics. Chapter Review: Key Points 1. Economics is concerned with choices and their consequences, and focuses on ways that individuals and societies allocate their limited resources to try to satisfy relatively unlimited wants. 2. Scarcity occurs because our relatively unlimited wants cannot be completely met from the limited resources available. A good is scarce if people cannot freely get all they want, so that the good commands a positive price. Scarcity forces all levels of decision makers from individuals to society at large to resolve three basic economic questions: a. What will be produced? b. How will production occur? c. Who will use the goods produced? 3. Goods include anything that adds to human happiness, while bads are things that detract from it. Economic goods are costly; free goods are not. 4. Production occurs when knowledge or technology is used to apply energy to materials to make them more valuable. 5. The opportunity costs of choices are measured by the subjective values of the best alternative you sacrifice. Absolute prices are monetary, and are useful primarily as indicators of relative prices , which are the prices of goods or resources in terms of each other, and which provide information and incentives to guide our decisions.
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2 Chapter 1: Economics The Study of Scarcity 6. Resources (factors of production) include: a. Labor . Productive efforts made available by human beings. Payments for labor services are called wages. b. Land . All natural resources. Payments for land are called rents . c. Capital . Improvements that increase the productive potential of other resources. Payments for the use of capital are called interest . When economists refer to capital, they mean physical capital rather than financial capital, which consists of paper claims to goods or resources. d. Entrepreneurship . The organizing, innovating, and risk-taking function that combines other factors to produce. Entrepreneurs are rewarded with profits . 7.
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SVE_SG-01 - Chapter 1 Economics: The Study of Scarcity...

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