Instructor: Gibson Nene
Chapter 1 Lecture Notes: Limits, Alternatives and Choices
The economic perspective or economic way of thinking takes the following concepts into consideration: * Scarcity and Choice * Purposeful Behavior * Marginalism: Benefits and Costs
Scarcity and Choice
Economics is about wants and means: * Society has the resources to make goods and services that satisfy our many desires. * However, our economic wants far exceed the productive capacity of our limited resources – our resources are scarce.
Definition: means that society has limited resources and therefore cannot produce all the goods and services people want
In other words economic resources are scarce and wants are infinite.
What is the meaning of scarcity from the consumers’ perspective? * Scarcity refers to limitations in consumption of the goods that are available because of limited income * Consumers have an income constraint.
Because resources are scarce when we choose to produce something we simultaneously make the choice to forgo producing something else. * When a good is produced, the resources employed can no longer be used to make another good. * We must decide what we will have and what we must forgo.
Such sacrifices are referred to as opportunity costs.
Dfn: The value of the good, service or time forgone to obtain something else.
When you choose to go to college, you forgo some potential income earnings.
So Economics studies the choices made by individuals and societies to utilize scarce resources to satisfy unlimited wants.
We make decisions to achieve desired outcomes * We are not always perfect in our choices
Human behavior is assumed to reflect rational self-interest * Economics assumes that individuals seek to increase or maximize their utility: pleasure, happiness or satisfaction * As consumers we assume you are purposeful