Chapter 1 Notes 

Economic Way of Thinking 

Ex. List 4-5 things you can do today after school.

                Choose 2 you are most likely to do.

                For each alternative there is a “trade-off” 

All theses items have an opportunity cost also opportunity lost  = what you lose by making a particular choice. Opportunity benefit is what you gain. The reason why one has to make choices is because of scarcity. There are not enough resources for everything. Resources can be time, money, natural resources, etc. We have limited resources but limited desires. 

Economics is the study of resource allocation.  Economics helps us analyze and perhaps predict what decisions people might make. 

Decisions you make should have greater opportunity benefit than opportunity cost. There should be more benefits than costs.

 Cost matrix 

$40 total income

$2 Video rental                      20                15                10                5              0

$10 Buy CD                             0                 1                  2                 3               4

 See Excel – Production Possibilities Curve (book 1, sheet 1)

 Guns and Butter production possibilities curve (military vs. consumer goods) 

Every country must answer the three basic economic questions:

1. What to produce? (guns vs. butter)
2. How to produce? (natural resources, human resources, energy)
3. For whom? (target consumer/group

How a country answers these questions determines the type of economy

4 types of economy

1. Tradition – family & community based; traditionally produced; self & others
2. Market System – based on demand; cheapest production; for people with money
3. Government – government; government; determined by government
4. Mixed Economy – both market and government (most countries are mixed. Some lean more towards market, other towards government)

Microeconomics (small) – individual people, individual firm, individual industry

Macroeconomics (big/whole) – all people, all firms, all industries