ECO MIDTERM

• Resources are scarce
• Scarcity is the limited nature of society’s resources
• Economics

  The study of how society manages its scarce resources
• Economists study:


  -How people decide

  what to buy,

  how much to work, save, and spend

  -How firms decide

  how much to produce,

  how many workers to hire

  -How society decides

  how to divide its resources between national defense, consumer goods, protecting the environment, and other needs
• The first four principles affects how people make decisions

  Principle 1: People face trade-offs

  Principle 2: The cost of something is what you give up to get it

  Principle 3: Rational people think at the margin

  Principle 4: People respond to incentives