Scarcity, Choice, and Decisions

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Questions and Answers

Why does scarcity force people to make choices?

Because resources are limited, people must decide which of their many wants and needs they will satisfy with those resources.

Explain how the concept of opportunity cost relates to decision-making under scarcity.

When choosing one option, the opportunity cost is the value of the next best alternative that is forgone as a result of that decision.

If Corny decides to buy the stereo system, what might be his opportunity cost, based on the information provided?

Depending on his spending habits, his opportunity cost could be the money he would have saved, or other items/activities he would have foregone, since he will be spending at least $1,000 on the stereo system.

What is economics?

<p>Economics is a social science that studies how individuals, institutions, and societies make optimal choices under conditions of scarcity.</p> Signup and view all the answers

In the context of economics, what is the difference between a need and a want?

<p>A need is something essential for survival, like food or shelter, whereas a want is something that people desire but is not essential for survival, like a new car or entertainment.</p> Signup and view all the answers

Explain why even wealthy societies face the problem of scarcity.

<p>Wealthy societies, while having more resources, still have a finite amount compared to the unlimited wants of their population.</p> Signup and view all the answers

Describe how individuals and societies make 'optimal choices' as described in the definition of economics.

<p>Optimal choices occur when individuals and societies weigh the costs and benefits of different options, and choose the option that provides the greatest net benefit, given available resources and constraints.</p> Signup and view all the answers

What are the four factors of production?

<p>The four factors of production are land, labor, capital, and entrepreneurship.</p> Signup and view all the answers

Differentiate between 'land' and 'capital' as factors of production.

<p>Land refers to natural resources, while capital refers to manufactured goods used to produce other goods and services.</p> Signup and view all the answers

Explain what 'labor' encompasses as a factor of production.

<p>Labor includes all the physical and mental effort people contribute to the production of goods and services.</p> Signup and view all the answers

What role does 'entrepreneurship' play in the factors of production?

<p>Entrepreneurship involves organizing the other factors of production, taking risks, and innovating to create new goods and services.</p> Signup and view all the answers

Why is entrepreneurship considered a critical factor of production in a modern economy?

<p>Entrepreneurs drive innovation, create jobs, and take risks to develop new products and markets, which are vital for economic growth and adaptation to changing conditions.</p> Signup and view all the answers

In Corny's situation, what are some factors that affect his financial decisions, linking them with the basic economic problem?

<p>Corny's limited income ($1700) forces him to make choices about allocating his resources among various wants (new car, stereo) and needs (housing, food), highlighting the basic economic problem of scarcity.</p> Signup and view all the answers

What are the three basic economic questions that all societies must answer?

<p>The three basic economic questions are: What to produce? How to produce? and For whom to produce?</p> Signup and view all the answers

Describe how the question 'How to produce?' addresses the issue of resource allocation.

<p>This question involves deciding the most efficient way to combine resources (land, labor, capital) to produce goods and services, considering technology and cost-effectiveness.</p> Signup and view all the answers

Explain how the concept of 'buy one, get one free', challenges the notion of scarcity.

<p>While seemingly defying scarcity, 'buy one, get one free' promotions don't eliminate costs; they redistribute them. The cost of the 'free' item must be covered by the seller, factored into the price of the item being purchased.</p> Signup and view all the answers

How does understanding the concepts of needs and wants influence personal budgeting and financial planning?

<p>Differentiating between needs and wants allows for prioritizing essential expenses (needs) over discretionary spending (wants), enabling more effective budgeting and financial planning towards long-term goals.</p> Signup and view all the answers

Explain how a society's decisions regarding 'what to produce' can reflect its values and priorities.

<p>The goods and services a society chooses to produce, reflects collective values and priorities, such as investing in education, healthcare, or military strength, illustrating societal preferences.</p> Signup and view all the answers

Explain how a society's decisions about 'for whom to produce' can influence income distribution and equality.

<p>The way a society distributes goods and services reflects its values about fairness and equity, impacting income distribution and access to resources among different groups.</p> Signup and view all the answers

How can technological advancements affect the 'how to produce' question over time?

<p>Technological advancements can allow for more efficient production methods, potentially lowering costs and improving the quality of goods and services that address the 'how to produce' question.</p> Signup and view all the answers

Flashcards

Scarcity

The condition of limited resources relative to unlimited wants, requiring choices.

Economics

The study of how societies allocate scarce resources to satisfy unlimited wants and needs.

Land

Natural resources used in production, not made by human effort.

Capital

Tools, equipment, and factories used in the production of goods and services.

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Labor

Human effort, both physical and mental, used in production.

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Entrepreneurs

Individuals who take risks to start new businesses or bring products to market.

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What to produce?

What goods and services should be produced with available resources?

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How to produce?

How should goods and services be produced?

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Who gets what?

Who should receive the goods and services that are produced?

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Study Notes

  • Economics is the study of introduction, needs, wants, and scarcity.
  • The objective is to explain why all societies face scarcity.
  • The objective is to identify three basic choices faced by all societies.
  • The objective is to describe the four basic factors of production.

Scarcity, Choice, and Decisions

  • Activity 2 involves Scarcity, Choice, and Decisions.
  • Jim Cornelius, also known as Corny, earns $1,700 per month as a lathe operator after graduating from a two-year technical training school.
  • Corny shares a two-bedroom apartment with a high school friend for $365 a month each, including utilities, local telephone service, and cable TV.
  • Corny wants to live alone in a one-bedroom apartment, but it would cost about $560 a month (including utilities).
  • Corny owes about $3,000 on his two-year-old compact car and has monthly payments of $190.
  • Corny wants to buy a new stereo system for at least $1,000 and has saved $300 in three months.
  • Corny has good credit and a credit card with zero balance, but he hesitates to add to his monthly payments.
  • Corny's monthly budget includes $130 for Social Security Tax, $200 for Income Tax, $220 for food groceries, $75 for eating out, $75 for clothing, $45 for gas/oil, and $35 for car insurance.

We Can't Have It All

  • The economic problem is to match limited resources to unlimited wants and needs

Defining Economics

  • Economics is a social science focused on how individuals, institutions, and society make optimal choices under scarcity.

Factors of Production

  • Land includes natural resources not created by human effort.
  • Capital includes the tools, equipment, and factories used in production.
  • Labor includes people with all their efforts and abilities.
  • Entrepreneurs are individuals who start a new business or bring a product to market.
  • Entrepreneurship is the factor of production when deciding to start a business and taking the risk to do so.
  • Capital is the factor of production when purchasing office supplies to run day to day operations.

Basic Economic Questions

  • What will be produced?
  • How will it be produced?
  • Who will get what is produced?

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