chapter 1 - chapter 1 > First Principles Section 1:...

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>> First Principles Section 1: Individual Choice: The Core of Economics chapter 1 Every economic issue involves, on its most basic level, individual choice —decisions by an individual about what to do and what not to do. In fact, you might say that it isn’t economics if it isn’t about choice. Step into a big store like a Wal-Mart or Home Depot. There are thousands of dif- ferent products available, and it is extremely unlikely that you—or anyone else—could afford to buy everything you might want to have. And anyway, there’s only so much space in your dorm room or apartment. So will you buy another bookcase or a mini- refrigerator? Given limitations on your budget and your living space, you must choose which products to buy and which to leave on the shelf. The fact that those products are on the shelf in the first place involves choice—the store manager chose to put them there, and the manufacturers of the products chose to produce them. All economic activities involve individual choice. Four economic principles underlie the economics of individual choice, as shown in Table 1-1. We’ll now examine each of these principles in more detail. Individual choice is the decision by an individual of what to do, which necessarily involves a decision of what not to do.
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Resources Are Scarce You can’t always get what you want. Everyone would like to have a beautiful house in a great location (and help with the housecleaning), two or three luxury cars, and fre- quent vacations in fancy hotels. But even in a rich country like the United States, not many families can afford all that. So they must make choices—whether to go to Disney World this year or buy a better car, whether to make do with a small backyard or accept a longer commute in order to live where land is cheaper. Limited income isn’t the only thing that keeps people from having everything they want. Time is also in limited supply: there are only 24 hours in a day. And because the time we have is limited, choosing to spend time on one activity also means choos- ing not to spend time on a different activity—spending time studying for an exam means forgoing a night at the movies. Indeed, many people are so limited by the number of hours in the day that they are willing to trade money for time. For exam- ple, convenience stores normally charge higher prices than a regular supermarket. But they fulfill a valuable role by catering to time-pressured customers who would rather pay more than travel farther to the supermarket. Why do individuals have to make choices? The ultimate reason is that resources are scarce . A resource is anything that can be used to produce something else. Lists of the economy’s resources usually begin with land, labor (the available time of workers), and capital (machinery, buildings, and other man-made productive assets). A resource is scarce when the quantity of the resource available isn’t large enough to satisfy all productive uses. There are many scarce resources. These include natural
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This note was uploaded on 04/07/2008 for the course ECON 201 taught by Professor Staff during the Fall '08 term at Oregon State.

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chapter 1 - chapter 1 > First Principles Section 1:...

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