Economic decision making
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Economic Decision Making. Why can’t we always get what we want?. Why is what we want Scarce?. We can’t get everything we want because there is a limited amount of resources to fulfill our wants. Why is what we want Scarce?.

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Economic Decision Making

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Economic Decision Making

Why can’t we always get what we want?


Why is what we want Scarce?

  • We can’t get everything we want because there is a limited amount of resources to fulfill our wants.


Why is what we want Scarce?

  • All goods (physical objects) and services (activities provided by others) are scarce because the resources needed to produce them are scarce.


Why is what we want Scarce?

  • Scarcity and shortage are not the same.

  • A shortage is a temporary condition that occurs when there is less of a good or service available than people want at the current price.


Why is what we want Scarce?

  • Since NO resource has an unlimited supply, scarcity exists all the time.

  • Shortage is a temporary condition, like shortage of building materials after a hurricane.


How do we satisfy Economic Wants?

  • The resources that go into making goods and services are called Factors of Production.

  • Land + Labor + Capital = Goods & Services


How do we satisfy Economic Wants?

  • Land resources – Gifts of Nature; air, soil, minerals, water, plants.


How do we satisfy Economic Wants?

  • Labor resources – physical and mental activities that go into producing goods and services.


How do we satisfy Economic Wants?

  • Capital resources – include the tools, machines, buildings, and technologies that are used in the production of goods and services.


How do we satisfy Economic Wants?

  • Entrepreneurs – Combine land, labor, and capital to produce goods and services.

  • They often supply vision, take risks, and provide the drive needed to turn ideas into realities.


What do we Give Up When We Make a Choice?

  • People seek to maximize their utility (satisfaction or benefit) when making decisions.

  • Making the most satisfying or beneficial decision means tradeoffs (alternatives among choices) must be considered.


What do we Give Up When We Make a Choice?

  • Opportunity Cost – the cost of a decision, it is the next best alternative, it is what we “loose when we choose.”


What do we Give Up When We Make a Choice?

  • Marginal Utility – The EXTRA satisfaction one gains from one additional unit.

  • Example: Two cookies make me slightly more happy than one cookie does.

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What do we Give Up When We Make a Choice?

  • Diminishing Marginal Utility – As we get more and more of something, the pleasure we get from the item decreases.


How Can We Measure What We Gain and Lose When Making Choices?

  • Productivity – a measure of the output of a system.


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