Scarcity Choice + Opportunity Cost

• Microeconomics is a study of how to best solve the basic economic problem, which is how to allocate scarce resources given unlimited wants.
• Resources, also known as factors of production, are scarce and can be categorized as capital, enterprise, land, and labor.
• Capital in economics does not mean money, but man-made aids to production such as machinery, tractors, and factories.
• Enterprise refers to entrepreneurs or risk takers who innovate and produce goods and services to make profits.
• Land in economics refers to natural land like farmland and rainforests where goods can be produced or goods can be taken.
• Labor in economics refers to human resources, workers that can produce goods and services.
• The world does not provide an infinite amount of these resources, hence they are scarce.
• In a market economy, businesses decide based on consumer demand how to produce and for whom to produce.
• The government can step in and help out in a market economy, but if you can afford it then you get it.
• Opportunity cost is the cost of the next best alternative foregone when a choice is made.
• If the value of our current choice is greater than the value of our opportunity cost, then we have made an excellent decision.
• If the value of our opportunity cost is greater than the value of our current choice, then we have made a bad decision and should allocate resources towards our opportunity cost instead of allocating resources towards our current choice.
• Production possibility frontiers can be used to analyze choices in more detail.