Chapter 1 : Scarcity, choice, and opportunity costs

• The basic economic problem is scarcity, where wants are unlimited and resources are finite, leading to choices that have to be made and resources used and distributed optimally
• Opportunity cost is the value of the next best alternative forgone when a choice is made, crucial for economic agents like consumers, producers, and governments
• Producers must decide what to produce based on consumer preferences, how to produce it to minimize costs, and for whom to produce it based on purchasing power in the economy
• Ceteris paribus is a key assumption in economics, assuming all other factors are held constant or equal, crucial for making economic predictions
• Thinking at the margin involves considering the next step or action for the consumer, with economic theory suggesting diminishing marginal returns as each additional unit consumed provides less utility
• When making decisions at the margin, individuals consider the additional cost or benefit, choosing the option that provides the largest marginal benefit
• Short run: at least one factor of production is fixed, limiting the response to price changes; Long run: all factors of production are variable, allowing firms to increase capacity; Very long run: all factors, including land, labour, capital, and entrepreneurship, are variable, along with external inputs like government rules and technology