the major ideas that drive the concept of
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The Major Ideas That Drive The Concept of Economics Michelle Holmes Economics Sept.27, 2011 What major ideas drive the concept of economics? •Scarcity vs. Needs •Opportunity Cost •Marginal Cost •Marginal Benefit •IncentivesTRANSCRIPT
What is the causal
relationship between
scarcities and needs?
• People have unlimited wants but
resources are limited.
• These resources are the input of
production: land, labor, and capitol.
– Example: Currently people want jobs but
there aren’t enough jobs for everyone.
• Because of scarcity, economic
decisions must be made in order to best
decide how to divide resources
efficiently.
Choices
• People must make choices between
different items because necessary
resources may be limited.
• These decisions are sometimes made
by giving up one want to satisfy another.
What are Opportunity
Costs?
• Opportunity Cost: The money or other
benefits lost when pursuing a particular
course of action instead of a mutually
exclusive alternative.
– For example, you spend time and money going
to a movie, you cannot spend that time at
home reading a book, and you cannot spend
the money on something else. If your next-best
alternative to seeing the movie is reading the
book, then the opportunity cost of seeing the
movie is the money spent plus the pleasure
you forgo by not reading the book.
What are
Marginal Costs? • Marginal Costs: At each level of
production includes any additional costs
required to produce the next unit.
– For example, if producing additional
vehicles requires, building a new
factory, the marginal cost of those
extra vehicles includes the cost of
the new factory.
What are Marginal
Benefits?
• Marginal Benefits: The additional
satisfaction or utility that a person
receives from consuming an additional
unit of a good or service.
– For example, Consumers make
rational decisions. If two products
are of equal benefit to a consumer,
then he or she will choose the
cheaper product. If two products are
the same price, the consumer will
choose the one that provides the
higher benefit.
What are incentives and
how do they cause changes
in behavior?
• Incentives are rewards that motivate
desirable actions.
– Examples
• Positive economic incentives
reward people financially for
making certain choices and
behaving in a certain way.
• Negative economic incentives
punish people financially for
making certain choices and
behaving in a certain way.
Vocab:
• Scarcity: Insufficiency or shortness of
supply.
• Seasonal Scarcity: All consumable
produce is grown in cycles.
• Incentives: Something that incites or
tends to incite to action or greater effort,
as a reward offered for increased
productivity.
• Total Cost: Describes the total
economic cost of production and is
made up of variable costs.
• Variable Cost: A cost of labor, material
or overhead that changes according to
the change in the volume of production
units.