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What is Economics?

What is Economics?. Economic Choices. Citizens must make them every day. Choices occur because resources are limited Needs are required , such as food and shelter Wants make life more comfortable and enjoyable , like vacations. Economic Choices (cont.).

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What is Economics?

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  1. What is Economics?

  2. Economic Choices Citizens must make them every day. Choices occur because resources are limited Needs are required, such as food and shelter Wants make life more comfortable and enjoyable, like vacations

  3. Economic Choices (cont.) • Economics is the study of decisions made in a world of limited resources • How things are made, bought, sold and used

  4. Economic Choices (cont.) • Economic models include: • Microeconomics: focuses on the small picture (individuals and businesses) • Macroeconomics: focuses on the big picture (governments, whole industries, societies) • US functions on free enterprise capitalism-produce things their people want and need

  5. The Problem of Scarcity • Scarcity means there is not enough • Scarcity of resources forces people to make economic decisions • No country has enough resources to produce what is necessary

  6. The Problem of Scarcity (cont.) • Countries have to make choices: • What to produce? • Howto produce? • For whom to produce?

  7. Trade-Offs • People must understand the costs and benefits of economic choices to make the best choice • A trade-off requires someone to decide to do one thing rather than another • Made by individuals, businesses, societies

  8. Trade-Offs (cont.) • Opportunity cost is the second best use after choosing one thing over another • Includes money, time, inconveniences, and so on

  9. Costs and Revenues There are ways to measure different types of costs and benefits.

  10. Costs and Revenues (cont.) • Types of Costs: • Fixed: does not change; has to be paid no matter what • Variable: changes based on what is produced • Total: fixed costs + variable costs • Marginal: cost of producing one additional unit of output

  11. Costs and Revenues (cont.) • Types of Revenues (money coming in) • Total revenue = number of units sold multiplied by average price per unit • Marginal revenue: made by selling one extra unit of a product

  12. Costs and Revenues (cont.) Marginal benefit is an additional benefit associated with an action Cost-benefit analysis requires rational economic decision making

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