Economics: Scarcity and Tradeoffs

• Economics is primarily about scarcity.
• If something is scarce, that means there is a limited availability of it.
• In most societies, resources are allocated by the combined actions of millions of households and firms.
• Economics is the study of how society manages its scarce resources.
• Which of the following is not an example of scarcity? Doug has an unlimited supply of apples in his orchard
• "There is no such thing as a free lunch" means that people face tradeoffs.
• The phrase "no such thing as a free lunch" means people must face tradeoffs.
• An example illustrating the "no free lunch" principle: Kendra must decide between going to Colorado or Cancun for spring break.
• Sophia's choice between going to the swimming pool or seeing a movie illustrates the basic principle that people face tradeoffs.
• If Mitch has $100 and must choose between a new guitar amplifier or an mp3 player, that illustrates that people face trade-offs.
• A tradeoff exists between a clean environment and a higher level of income because laws that reduce pollution raise costs of production and reduce incomes.
• When society requires that firms reduce pollution, there is a tradeoff because of reduced incomes to the firms' owners and workers.
• Economists use the word equality to describe a situation in which each member of society has the same income.
• Efficiency means that society is getting the maximum benefits from its scarce resources.
• Efficiency refers to how much a society can produce with its resources.
• Equality refers to how evenly the benefits from using resources are distributed among members of society.
• Equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.
• Best phrase that captures the notion of efficiency: minimum waste.
• A typical society faces a tradeoff between efficiency and equality.
• Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
• Government policies that redistribute income from the wealthy to the poor tend to enhance equality, reduce efficiency, and reduce the reward for working hard.
• An economist would say that a good decision requires that we recognize both viewpoints.
• In economics, the cost of something is what you give up to get it.

Opportunity Cost

• High-school athletes skipping college to become professional athletes understand that the opportunity cost of attending college is very high.
• When computing the opportunity cost of attending a concert, include the price you pay for the ticket and the value of your time.
• Denise's opportunity cost of working three hours overtime instead of watching a video is the enjoyment she would have received had she watched the video.
• Ellie's opportunity cost of napping instead of attending classes is the value of the knowledge she would have received had she attended class.
• For most students, the largest single cost of a college education is the wages given up to attend school.
• The opportunity cost of going to college is the value of the best opportunity a student gives up to attend college.
• The money a student spends on rent for his apartment while attending school is not an example of the opportunity cost of going to school.
• For a college student calculating the true costs of college, the costs of room and board should be counted only to the extent that they are more expensive at college than elsewhere.
• The opportunity cost of going to college would be highest for a promising young mathematician who will command a high salary once she earns her college degree.
• When calculating the opportunity cost of quitting a bank job to attend a one-year graduate program, the future salary is not included in calculation of your opportunity cost.
• Computing opportunity cost when on vacation and deciding to visit unplanned attraction, you should include the cost of next miles but not cost of previous miles
• College-age athletes who drop out of college to play professional sports are well aware that their opportunity cost of attending college is very high.

Rational Decision Making

• A rational decisionmaker takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
• A rational decision maker takes an action only if the marginal benefit is greater than the marginal cost.
• People are willing to pay more for a diamond than for a bottle of water because the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
• If it costs a company $50,000 to produce 5000 beach towels and $50,009 to produce an additional one, its average cost is greater than its marginal cost.
• The marginal benefit Colin gets from eating a fourth slice of pizza is the total benefit Colin gets from eating four slices of pizza minus the total benefit Colin gets from eating three slices of pizza.
• A barber should expand his operation to serve more clients if the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.
• A bus company could increase its profit only if it charged any ticket price above $0 for the three remaining seats.
• The driver's feet non refundable, the bus rental may be canceled a week with fee, the fuel costs are sunk costs.
• If the construction company can experience a marginal benefit of $275,000 by building house, then the company should build it.
• Betty should be willing to sell the remaining bread for any price above $0 per loaf since she will have to throw it away if she does not sell it for something.
• Kyle should consider the increase in the price of gas, but not the unexpected repairs in deciding if it is still worthwhile to go on the trip.

Governmental Policies

• A professor's decision to teach economics despite a higher paying job should not change unless the marginal cost of teaching increased.
• Government policies have potential to result that policymakers do not intend.
• If Massachusetts increases the tax on alcoholic beverages, result Residents Alcohol best illustrates people respond to incentives
• In the former Soviet Union, the economic incentives for producers were to produce enough to meet the output target, without regard for quality or cost.

Models

• Models built to illustrate reality and carefully constructed theory.
• The more details a model includes, the better the model.
• In building economic models, economists often omit details.
• Economic models are useful, and used for improving public policies
• Economic models do not to mirror reality exactly.
• Economists ignore equations constructing.
• economists sometimes make assumptions that are contrary to features of the real world.
• The circular-flow diagram is a visual model of the economy.
• The circular-flow diagram incorporates two types of decision makers households and firms.
• In the circular-flow diagram, firms produce goods and services using factors of production.
• Factors of production are inputs into the production process.

Economic Terminology

• Factors of production are used to produce goods and services.
• Another term for factors of production is inputs.
• In the simple circular-flow diagram, households own the factors of production.
• Another name for goods and services produced by firms is output.
• Jason provides plumbing services for a plumbing company and receives an hourly wage from the company for his services does not take place in the markets for the factors of production in the circular flow diagram
• When constructing a production possibilities frontier, the assumption that is not made: The quantities of the factors of production that are available are increasing over the relevant time period.
• Any point on a country's production possibilities frontier represents a combination of two goods that an economy can produce using all available resources and technology.
• An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier.
• An economy cannot produce outside its production possibilities frontier
• An economic outcome is said to be efficient if the economy is getting all it can get from the scarce resources it has available. -If an economy is producing efficiently, then that's illustrate with Production possibilities frontier
• Suppose a nation is currently producing at a point inside its production possibilities frontier. it means that the nation is not using all available resources or is using inferior technology or both.

Short answers

• Jamal has a very flexible summer job. If jamal earn wages less than 13, he should go Amusement park because benefit is more that cost.
• washing cost and earning of a fresh car, wash the car cause benefit will be great the cost.
• A group has arranged with Bus to Niagara Falls, , At $25 a ticket, if at least 25 people can make cancelation bus trip is a bad iidea.