Basic Terms
something that we desire but that is not necessary for survival
Wants
The value of the next best alternative that you give up when you make a decision.
Opportunity cost
This economic problem exists because resources are limited but wants are unlimited.
Scarcity
An economic decision-making process that compares the expected costs of an action to its expected benefits
Cost/benefit analysis
When prices for many goods and services rise across the economy over time, this occurs
Inflation
something essential for survival, such as food or medical care
Needs
If you choose to go to the movies instead of working a 4-hour shift at $15 per hour, this is your opportunity cost.
This curve shows the different combinations of two goods an economy can produce using all available resources efficiently.
Production Possibilities Curve
If the benefits of an action are greater than the costs, an economist would say you should do this.
Proceed with the action. (Do it!)
When a government places a tax on imported goods to protect domestic industries, it is using this trade policy.
Tariff
physical objects that someone produces, such as food, clothing, clothing, or video games
Goods
A student has $20 and can either buy a new T-shirt or two fast-food meals. If she buys the T-shirt, this becomes her opportunity cost.
The two fast-food meals she did not buy
If an economy moves from one point to another on its PPC, producing more of one good and less of another, this concept is illustrated.
Trade-off
A city is considering building a new park. The project will cost $2 million but is expected to generate $3 million in economic and social benefits. Based on cost–benefit analysis, what decision should the city make?
Build the park
Taylor Swift announces a surprise tour. Ticket prices skyrocket because so many fans want them at the same time. These basic economic forces are responsible.
The study of how people seek to satisfy their needs and wants by making choices
Economics
You receive a $1,000 graduation gift. You can either put it in a savings account earning 5% interest or spend it on a vacation. If you choose the vacation, this is your opportunity cost after one year.
$1,050. (The $1,000 plus $50 in interest you gave up.)
What are the 4 factors of production?
Land, labor, capital, entrepreneurs
When deciding whether to study one more hour, a student compares the additional improvement to her grade with the additional loss of sleep. This type of cost–benefit thinking focuses on these types of costs and benefits.
Marginal costs & marginal benefits
A TikTok goes viral saying there’s a shortage of Stanley cups, so everyone rushes to buy them, even though production hasn’t changed. This demonstrates a shift in what?
Demand for Stanley cups
An economic decision-making process that involves comparing the additional costs and additional benefits of one more unit of a good or activity.
Thinking at the margin
A company owns a building and uses it for its own office space. It does not pay rent. However, it could lease the building to another business for $4,000 per month. Economists would say this is the company’s opportunity cost of using the building.
$4000 in rent
Explain the concept of "guns or butter"
The idea that a country must choose how to allocate limited resources between military goods (“guns”) and consumer goods (“butter”), demonstrating tradeoffs and scarcity
Explain why cost–benefit analysis can be difficult for governments when making decisions about issues like pollution, healthcare, or public safety.
Some costs and benefits are hard to measure in dollars, such as human life, environmental damage, or quality of life.
A country can produce either 1,000 guns or 500 tons of butter. What is the opportunity cost of 1 ton of butter?
2 guns