Supply & Demand - Faculty.utep.edu

1ar ty.a the Seien e fo omlcs (pages 5-10)• TIle basic economic problem of scarcity is due tothe combination of people's seemingly unlimitedwants and relatively scarce resources.• In a world of scarce resources, There Is No SuchThing As A Free Lunch (TINSTAAFL).• Because of scarcity, societyhas to decide WHAT, HOW,and FOR WHOM toproduce.• Land, capital, labor, andentrepreneurs are the fourfactors ofproductionrequired to produce the thingsthat people use.• Entrepreneurs are risk-taking individuals who go intobusiness in order to make a profit; they organize theother factors of production.• The scope of economics deals with description,analysis, explanation, and prediction.2Basic Economc one ts (pages 12-17)• Consumers use goods and services to satisfy theirwants and needs.• Something has value when it has utility and is relativelyscarce.• Wealth consists of products that are scarce, useful,and transferable to others, but wealth does notinclude services, which are intangible.Markets link individuals and businesses in the circularflow of economic activity; the factors of productionare traded in factor markets; goods and servicesare traded in the product markets.• Productivity and investments in human capital helpeconomic growth; investments in human capital areamong the most profitable of all investments.Increases in specialization and division oflaborcause more economic interdependence.Section 3Economic Cho·ces aMaki g (pages 19-25)Deci ion• The opportunity cost of doing something is the nextbest alternative, or trade-off, that you give up.• A decision-making grid can be used to help evaluatealternatives.• A production possibilities frontier shows the variouspossible combinations of output that can beproduced when all resources are fully employed;production inside the frontier occurs when someresources are idle or are not being used to theirmaximum capability.• When economic growth takes place, the productionpossibilities frontier shifts outward, showing thatmore products are produced than before.• The economic way of thinking involves simplificationwith model building, cost-benefit analysis to evaluatealternatives, and incremental decision making.• The study of economics will make youa better decision maker and willhelp you to understand theworld around you; however,the study of economicswill not tell you whichdecisions to make.• The study of economicshelps people understandhow a free enterpriseeconomy makes theWHAT, HOW, and FORWHOM decisions,