Chapter 2

• Economics


  The study of choices people and societies make to attain their unlimited wants, given scarce resources

  • we study how people make choices and interact in markets
• Scarcity 


  Is the condition that arises because wants exceeds the ability or resources to satisfy them

  1. Unlimited wants
  2. Limited resources
• Scarcity and trade-offs


  Resources: inputs used to produce goods and services including:

  • Land - natural resources such as water and minerals
  • Labour - (workers)
  • Capital - (not $$$) such as machinery, equipment, factories
  • Entrepreneurial ability

  Trade-off:

  The idea that, because of scarcity, producing more or one good or service means producing less of another good or service.
• Production possibilities

  Production possibilities assumptions:

  • Fixed resources
  • Full employment of resources
  • Fixed technology
  • Two products only
• Points inside the curve

  • not the maximum
  • inefficient
  • unemployment (didn't use all the resources)
  • no trade-off moving 1 point to a point on the curve
• Points outside the curve

  • not possible
  • unattainable given the current amount of resources
• Absolute Advantage


  The ability of an individual, firm or country to produce more of a good or service than other producers using the dame amount of resources
• Comparative advantage


  The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers