Economic Decision Making Cut & Paste Notes

1. Economic Decision MakingCut & Paste Notes Why can’t we always get what we want?

2. Why is what we want Scarce? • We can’t get everything we want because there is a limited amount of resources to fulfill our wants.

3. Why is what we want Scarce? • All goods (physical objects) and services (activities provided by others) are scarce because the resources needed to produce them are scarce.

4. Why is what we want Scarce? • Scarcity and shortage are not the same. • A shortage is a temporary condition that occurs when there is less of a good or service available than people want at the current price.

5. Why is what we want Scarce? • Since NO resource has an unlimited supply, scarcity exists all the time. • Shortage is a temporary condition, like shortage of building materials after a hurricane.

6. How do we satisfy Economic Wants? • The resources that go into making goods and services are called Factors of Production. • Land + Labor + Capital = Goods & Services

7. How do we satisfy Economic Wants? • Land resources – Gifts of Nature; air, soil, minerals, water, plants.

8. How do we satisfy Economic Wants? • Labor resources – physical and mental activities that go into producing goods and services.

9. How do we satisfy Economic Wants? • Capital resources – include the tools, machines, buildings, and technologies that are used in the production of goods and services.

10. How do we satisfy Economic Wants? • Entrepreneurs – Combine land, labor, and capital to produce goods and services. • They often supply vision, take risks, and provide the drive needed to turn ideas into realities.

11. What do we Give Up When We Make a Choice? • People seek to maximize their utility (satisfaction or benefit) when making decisions. • Making the most satisfying or beneficial decision means tradeoffs (alternatives among choices) must be considered.

12. What do we Give Up When We Make a Choice? • Opportunity Cost – the cost of a decision, it is the next best alternative, it is what we “loose when we choose.”

13. What do we Give Up When We Make a Choice? • Marginal Utility – The EXTRA satisfaction one gains from one additional unit. • Example: Two cookies make me slightly more happy than one cookie does. + =

14. What do we Give Up When We Make a Choice? • Diminishing Marginal Utility – As we get more and more of something, the pleasure we get from the item decreases.

15. How Can We Measure What We Gain and Lose When Making Choices? • Productivity – a measure of the output of a system.