⏱️ September 12, 2020
Scarcity is the basic problem in economics in which society does not have enough resources to produce whatever everyone needs and wants. Basically, it is unlimited wants and needs vs. limited resources. Scarcity is faced by all societies and economic systems. Since we are faced with scarcity, we must make choices about how to allocate and use scarce resources.
Economics is the study of how individuals, firms, and governments deal with scarcity. As a result of facing scarcity, all members of a society have to make choices in an effort to manage our resources in the most efficient way possible. The choices we make are known as trade-offs.
Microeconomics is the study of how individuals, households, and firms make decisions and allocate resources. For example, whether a high school graduate chooses to go to college or directly into the workforce is a microeconomic decision.
Macroeconomics is the branch of economics that studies the behavior and performance of the entire economy instead of just its small parts. The discussion on unemployment numbers currently in the news would be a macroeconomics topic.
The resources that are scarce in every society are divided into four categories:
Trade-offs—each of the alternative choices that you gave up when making a decision. For example, you walk into the cafeteria for lunch at school and you have the option of pizza, a cheeseburger, or chicken sandwich for lunch. If you choose to have pizza, then the cheeseburger and chicken sandwich are your trade-offs🍕
Opportunity Cost—this is the value of the next best alternative when making a choice. Going back to the example of what to have for lunch, if you choose pizza, but get to the front of the line and the last slice of pizza was taken by the kid in front of you, you choose a cheeseburger instead. The cheeseburger is your opportunity cost because it is the next best alternative if your first choice is unavailable 🍔
The table below shows two possible combinations of trucks and cars that can be produced given a set amount of resources. A company or country can move between the two possibilities to best meet their needs. When they move from combo A to combo B, they give up 6 million trucks. That is their opportunity cost for this decision. If they were producing at combo B and moved to combo A, they would give up 8 million cars (opportunity cost).
|Combo A||Combo B|
|Trucks||8 million||2 million|
|Cars||2 million||10 million|
💸 Unit 1: Basic Economic Concepts
1.2Opportunity Cost and the Production Possibilities Curve (PPC)
1.3Comparative Advantage and Trade
📈 Unit 2: Economic Indicators and the Business Cycle
2.1Circular Flow and GDP
2.6Real vs Nominal GDP
💲 Unit 3: National Income and Price Determination
3.5Equilibrium in Aggregate Demand-Aggregate Supply (AD-AS) Model
💰 Unit 4: Financial Sector
4.3Definition, Measurement, and Functions of Money
4.4Banking and the Expansion of the Money Supply
⚖️ Unit 5: Long-Run Consequences of Stabilization Policies
5.1Fiscal and Monetary Policy Actions in the Short-Run
5.3Money Growth and Inflation
5.4Deficits and the National Debt
🏗 Unit 6: Open Economy-International Trade and Finance
6.1Balance of Payments Accounts
6.4Effect of Changes in Policies & Economic Conditions on the Foreign Exchange Market
*ap® and advanced placement® are registered trademarks of the college board, which was not involved in the production of, and does not endorse, this product.
© fiveable 2021 | all rights reserved.
2550 north lake drive
milwaukee, wi 53211