Scarcity and Opportunity Costs
What is scarcity in economics?
Scarcity is the fundamental economic problem of having limited resources to meet unlimited wants.
What is economics?
Economics is the study of how people and societies manage scarce resources and make choices.
What are the factors of production?
Land, labor, capital, and entrepreneurship.
What is marginal analysis?
Marginal analysis is the process of weighing the costs and benefits of adding "one more"
What are monetary incentives?
Monetary incentives are financial rewards that motivate people to act, such as bonuses or salary increases.
What is the opportunity cost of choosing to buy a video game instead of concert tickets?
The concert tickets.
What are the three basic economic questions every society must answer?
What to produce, how to produce, and for whom to produce.
What does the factor of production 'land' include?
Land includes all natural resources used in production.
What is the Law of Diminishing Returns?
The Law of Diminishing Returns states that as more of a variable resource is added to a fixed resource, the additional output from each additional unit of input will eventually decrease.
What are non-monetary incentives?
Non-monetary incentives include non-financial rewards like recognition or job satisfaction.
Give an example of scarcity.
A child wanting to buy multiple toys but having only a limited amount of money.
What is the difference between microeconomics and macroeconomics?
Microeconomics focuses on individual markets and decision-making by consumers or firms, while macroeconomics studies the economy as a whole, including national GDP and unemployment rates.
Define 'capital' in economic terms.
Capital refers to human-made resources like machines and tools used in the production of goods and services.
How is marginal analysis used in decision-making?
Marginal analysis is used to evaluate the additional benefits and costs of a decision to determine the optimal choice.
How can a company use incentives to improve employee performance?
A company can use incentives such as bonuses, promotions, or recognition programs to motivate employees to work harder, meet targets, and improve their overall performance.
What is the opportunity cost of spending time studying for an exam instead of going out with friends?
The time spent socializing with friends.
What does "thinking at the margin" mean?
Thinking at the margin involves making decisions based on the additional benefit and cost of a choice, focusing on "one more" unit or incremental change.
What role does entrepreneurship play in the economy?
Entrepreneurship involves organizing and combining the other factors of production to create goods and services, taking on risks in the process.
If a bakery’s extra hour of operation costs $80 but brings in $100, what is the marginal benefit?
The marginal benefit is $20 ($100 revenue - $80 cost).
Provide an example of a non-monetary incentive in the workplace.
An employee of the month award or flexible working hours.
How does scarcity affect decision-making?
Scarcity forces individuals and societies to make choices and prioritize their wants and needs due to limited resources.
What is one of the basic economic assumptions used in decision-making?
Unlimited Wants: People always want more, even if their needs are satisfied.
Self-Interest: People make decisions that benefit themselves.
Rational Decision-Making: Individuals weigh costs and benefits to make logical choices.
Scarcity: Resources are limited, necessitating choices and trade-offs.
Marginal Thinking: Decisions are made based on small changes in resources or benefits.
How does 'capital' differ from 'land' in the context of factors of production?
Capital refers to human-made resources like machines and tools used in production, whereas land includes natural resources like minerals, forests, and water.
Why might a business choose not to add a new product if the marginal cost exceeds the marginal benefit?
Because the additional costs outweigh the additional revenue or benefits, leading to a net loss.
Why are incentives important in economics?
Incentives guide individuals’ decision-making and behavior by aligning personal goals with desired outcomes or rewards.