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Chapter 1

ECON 202 Chapter Notes - Chapter 1: Opportunity Cost


Department
Economics
Course Code
ECON 202
Professor
Karen Gebhardt
Chapter
1

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Economics: Core Issues
Three Core Issues
o WHAT to produce with our limited sources
o HOW to produce the goods and services we select
o FOR WHOM goods and services are produced (who could get them)
Scarcity: The Core Problem
o Scarcity
- Lack of enough resources to satisfy all desired uses of those resources
o Scarcity of resources limits the amount of goods and services that can be
produced
- Somebody’s wants will have to go unfulfilled
- Scarcity requires economic choices to be made
Factors of Production
o Resource inputs used to produce goods and services
o Labor
Skills and abilities of all humans at work
o Land
All natural resources
o Capital
Goods produced for use in further production
o Entrepreneurship
Assembling of resources to produce new products/technologies
Limits to outputs
o Limited resources requires choices and trade-offs to be made
o Economics is the study of how best to allocate scarce resources among
competing uses.
Opportunity Cost
o The most desired goods or services forgone to obtain something else
o When we choose to use resources to produce one thing, we must give up
producing something else with those resources.
Production Possibilities
o The combos of final goods and services that could be produced in a given
time period with all available resources and tech
o Illustrates the economic concepts of:
Scarcity
Trade-offs
Opportunity Costs
Resources are specialized to produce one good better than another
Efficiency
o Max output of a good from the resources used in production
Laizzez faire
o The doctrine of ‘leave it alone’ of nonintervention by gov in the country
Market Mechanism
o Use of market prices and sales to signal desired outputs and resource
allocations
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