Micro CHAPTER 1.1:

CHAPTER SUMMARY

Humans have both wants and needs. According to economic theory, our wants are unlimited, meaning that we always want to get more stuff. However, there is a limit to how much stuff we can make and consume - this is called scarcity (scare-suh-dee). Scarcity occurs because there is only so much land, labor, capital, and entrepreneurship (on-truh-pruh-noor-ship) available. These four resources are called factors of production, because by combining them we can produce all kinds of goods and services.

Economics is the study of how people, businesses, and governments deal with scarcity through choices involving trade-offs - having to choose between multiple things, such as what to produce, or who should receive it. Microeconomics focuses mostly on how individuals and firms (businesses) make these decisions. Positive economics tries to explain why things are the way they are, while normative economics tries to make recommendations for how things should be. Economists often look at how people and business respond to incentives - the things that make us want to do things (or not do things).

The things that we have to give up in order to get something else are called opportunity costs. For example, if I want to keep my job at St. Paul, I cannot also live with my family in America. Living with my family in America is an opportunity cost of working here - something that I have to give up because of my choice.

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CHAPTER PRACTICE

EXTENSION