The study of how to best solve the basic economic problem
Basic economic problem
How to allocate scarce resources given unlimited wants
Factors of production
Capital
Enterprise
Land
Labor
Capital
Man-made aids to production
Enterprise
Risk-takers who innovate and produce goods and services to make profits
Land
Natural resources where goods can be produced or taken
Labor
Human resources that can produce goods and services
The world does not provide an infinite amount of factors of production, they are scarce resources
Fundamental choices in a market economy
What to produce
How to produce it
For whom to produce
Opportunity cost
The cost of the next best alternative foregone when a choice is made
Opportunity cost is used to measure whether the choices made are good or bad
If the value of the current choice is greater than the opportunity cost, it is a good decision. If the opportunity cost is greater, it is a bad decision.
