Unit 1: Basic Economic Concepts

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.

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.

In every economy there are three questions that must be answered:

The production possibilities curve is the first graph that we study in microeconomics. It shows us all of the possible production combinations of goods, given a fixed amount of resources. We assume three things when we are working with these graphs:

The concepts of absolute advantage and comparative advantage illustrate how individual countries or entities interact and trade with each other. For example, countries can specialize in what they are good at producing and then trade for goods and services that they are not as efficient at.

In economics, consumers make rational choices by weighing the costs and benefits. In economics, marginal means additional, or the change in the total (you will see this term a lot!)

Marginal analysis allows us to explain how consumers make choices about what goods and services to purchase. As consumers, we want to maximize our satisfaction, which is known as utility maximization. In economics, utility is defined as satisfaction. Marginal utility is essentially the same thing as marginal benefit.