Introduction to Economics

Of those goods satisfies wants goods can be tangible

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Unformatted text preview: the consumption of those goods satisfies wants. Goods can be tangible or intangible. Tangible goods are physical items such as bulldozers or pizzas. Intangible goods such as medical care or education are called services. Both goods and services satisfy wants and therefore can be called goods. Opportunity Cost Opportunity That which we forgo, when making a choice or decision is That called the opportunity cost of the decision. called opportunity of Marginal Analysis & Sunk Cost A second key concept used in analyzing choices is the second notion of marginalism. In weighing the costs and marginalism In benefits of a decision, it is important to weigh only the costs and benefits that is derived directly from, or contingent of the decision. Example of Marginal Cost Example You can see a decreasing marginal benefit against a constant marginal cost, because every additional bottle of Coca Cola is bought at the same price. When you are scorchingly thirsty, a bottle of iced Coca Cola can give you so much satisfaction and enjoyment that you value it far above its price and you buy it without any hesitation. However, as you drink more, you are not that thirsty any more and value the same bottle of iced Coca Cola not so much as you previously did. Your thirsty is reduced little by little with every additional unit of Coca Cola until you eventually value a bottle of Coca Cola equally with its price. And your incentive to buy it finally disappears. Positive vs. Normative Positive The questions economics asks and attempts to answer fall into The two categories. Positive economics is an assertion about Positive economic reality that can be supported or rejected by reference to the facts. It is used to understand the behavior and operation of the It economic systems, rather than passing judgments on them. Normative economics reflects opinions and values, judging Normative whether the outcomes are good or bad. Simply speaking, positive whether Simply economics deal with what is while normative economics is what concerned with what should be what The Two Reasons Economics Come to Be: Scarce Resources & Unlimited Wants Resources Economics examines how people use their scarce Economics resources in an attempt to satisfy their unlimited wants. Would you like a grand new Porsche, a sea shore villa or a luxury ocean journey aboard the Luxury Liner Hawaii? Would you like more free time, more sleeping time and more money to spend? Who wouldn't? The problem is simply that the resources available to satisfy these wants, or desires, are virtually limited. They are scarce. Economic choices arise from scarcity. If it were scarce Economic If not scarcity, we would never bother to study economics, making choices in between, constructing economic structures and market mechanisms to produce and distribute; and trying to maintain them work smoothly and efficiently. work The Three Basic Questions Due to scarcity, all societies or economies must answer three basic questions: answe...
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This note was uploaded on 09/19/2013 for the course BUSINESS 1 taught by Professor Bostick during the Fall '12 term at University of Texas.

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