Chapter 1: What is Economics about?
1.1 • Economic Problem: how a society can satisfy the unlimited wants with the limited resources available. • Opportunity Cost: represents the cost of satisfying one want over an alternative want. Also known as economic cost/real cost. • Wants: are the material desires of individuals or the community. They provide utility/satisfaction/pleasure when consumed. ○ Needs: are wants, but are basic necessities of life such as food and shelter. ○ Recurrent Wants: some wants will need to be satisfied over and over again ○ Complimentary Wants: a wants that naturally follows after an initial satisfaction of another want. • Individual wants: are the desires of each person. Will depend on personal preference, ability to purchase goods and services (level of income). The lesser the income a person has, the fewer the wants that they are able to satisfy. • Collective Wants: are the wants of the whole community. ○ Usually provided by the government by using taxation revenue § Local government provide waste services § State Government provide police force § Federal Government provide defence force ○ What is desired will depend on the community as a whole • Factors affecting changes in wants: ○ Age: 11 year old wants a bike, 21 year old wants a car ○ Income: as income increase, you are able to afford more luxurious goods, and you increase the range of wants you can satisfy. ○ Technology: introduces new wants that people seek to satisfy, new computer are being wanted ○ Fashion: new clothes and new music change due to trends in fashion over time. • Key economic issues 1. What to produce? § Due to limited resources, no economy is able to satisfy the all individual and collective wants. § An economy must decide what wants to satisfy first, hence deciding what goods and services to produce. 2. How much to produce?