scarcity: the limited nature of society s resources. economics: the study of how society manages its scarce resources, e. g. how people decide what to buy, how much to work, save, and spend. how firms decide how much to produce, how many workers to hire. how society decides how to divide its resources between national defence, consumer goods, protecting the environment, and other needs. society faces an important tradeoff: efficiency vs. equality. efficiency: when society gets the most from its scarce resources. equity: when prosperity is distributed uniformly among society s members. tradeoff: to achieve greater equality, could redistribute income from wealthy to poor. But this reduces incentive to work and produce, shrinks the size of the economic pie. making decisions requires comparing the costs and benefits of alternative choices. the opportunity cost of any item is whatever must be given up to obtain it.