Economic systems differ in two important ways: Who owns the factors of production and the
method used to coordinate economic activity.
A. Command economy, socialism or communism:
1. There is public (state) ownership of resources.
2. Economic activity is c
Chapter 01 - Limits, Alternatives, and Choices (+ Appendix)
A. The slope of a straight line is the ratio of the vertical change to horizontal change
between any two points on the line. Some students will remember this as rise over
1. The slope of a l
Graphs and Their Meaning
A. Graphs help students to visualize and understand economic relationships. Most of
our economic models explain relationships between just two sets of economic facts.
B. Constructing a two-dimensional graph involves drawing a h
1. Economics is a social science concerned with:
A. The best use of scarce resources to achieve the maximum satisfaction of economic
B. Increasing the level of productive resources so there is a minimum level of income.
C. Increasing the level of p
Unemployment, Growth, and the Future
A. Unemployment occurs when the economy is producing at less than full employment or inside the
curve (point U in Figure 1.4).
B. A growing economic results in larger total output, and is illustrated by an outward s
Law of increasing opportunity costs:
1. The amount of other products that must be foregone to obtain more of any given
product is called the opportunity cost.
2. Opportunity costs are measured in real terms rather than money (market prices are
not part of
Societys Economizing Problem
A. Scarce resources
1. Economic resources are limited relative to wants.
2. Economic resources are sometimes called factors of production and include all natural,
human, and manufactured resources used to produce goods and
Wants include both necessities and luxuries (although many economists dont
about this distinction).
2. Wants change, especially as new products are introduced.
3. Both goods and services satisfy wants.
4. Even the wealthiest have wants that extend b
Theories, Principles, and Models
A. Economists use the scientific method to establish theories, laws, and principles.
1. The scientific method consists of:
a. The observation of facts (real data).
b. The formulations of explanations of cause and effect
Definition of Economics
A. The social science that studies how individuals, institutions, and society make optimal
choices under conditions of scarcity.
B. Human wants are unlimited, but the means to satisfy the wants are limited.
The Economic Pers