Summary

Section 1

Scarcity and the Science of Economics (pages 5-10)

• The basic economic problem of scarcity is due to the combination of people's seemingly unlimited wants and relatively scarce resources.

• In a world of scarce resources, There Is No Such Thing As A Free Lunch (TINSTAAFL).

• Because of scarcity, society has to decide WHAT, HOW, and FOR WHOM to produce.

• Land, capital, labor, and entrepreneurs are the four factors of production required to produce the things that people use.

• Entrepreneurs are risk-taking individuals who go into business in order to make a profit; they organize the other factors of production.

• The scope of economics deals with description, analysis, explanation, and prediction.

Section 2

Basic Economic Concepts (pages 12-17)

• Consumers use goods and services to satisfy their wants and needs.

• Something has value when it has utility and is relatively scarce.

• Wealth consists of products that are scarce, useful, and transferable to others, but wealth does not include services, which are intangible.

• Markets link individuals and businesses in the circular flow of economic activity; the factors of production are traded in factor markets; goods and services are traded in the product markets.

Productivity and investments in human capital help economic growth; investments in human capital are among the most profitable of all investments.

Increases in specialization and division of labor cause more economic interdependence.

Section 3

Economic Choices and Decision Making (pages 19-25)

• The opportunity cost of doing something is the next best alternative, or trade-off, that you give up.

• A decision-making grid can be used to help evaluate alternatives.

• A production possibilities frontier shows the various possible combinations of output that can be produced when all resources are fully employed; production inside the frontier occurs when some resources are idle or are not being used to their maximum capability.

• When economic growth takes place, the production possibilities frontier shifts outward, showing that more products are produced than before.

• The economic way of thinking involves simplification with model building, cost-benefit analysis to evaluate alternatives, and incremental decision making.

• The study of economics will make you a better decision maker and will help you to understand the world around you; however, the study of economics will not tell you which decisions to make.

• The study of economics helps people understand how a free enterprise economy makes the WHAT, HOW, and FOR WHOM decision*

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