- Productive
resources are limited. Therefore, people cannot have all the goods
and services they want; as a result, they must choose some things
and give up others.
- Students
face many choices every day. Is watching TV the best use of your time?
Is working at a fast food restaurant better than the best alternative
job or some better use of your time? Identifying and systematically
comparing alternatives enable people to make more informed decisions
and to avoid unforeseen consequences of the choices they made.
- Some
students believe that they can have all the goods and services they
want from their family or from the government because goods provided
by family or by governments are free. But this view is mistaken. Resources
have alternative uses, even if parents or government own them. For
example, if a city uses land to build a football stadium, the best
alternative use of that land must be given up. If additional funds
are budgeted for police patrols, less money is available to hire more
teachers. Explicitly comparing the value of alternative opportunities
that are sacrificed in any choice enables citizens and their political
representatives to weigh the alternatives in order to make better
economic decisions. This analysis also makes people aware of the consequences
of their actions for themselves and others, and leads to a heightened
sense of responsibility and accountability.
- People
make choices because they can't have everything they want. Economic
wants are desires that can be satisfied by consuming a good, a service,
or leisure activity. Goods are objects that satisfy people's
wants and services are actions that satisfy people's wants.
People's choices about what goods and services to buy and consume
determine how resources will be used. Whenever a choice is made, something
is given up. The opportunity cost of that choice is the value of the
best alternative given up. People whose wants are satisfied by using
goods and services are called consumers. Productive resources are
the natural resources, human resources, and capital goods (tools,
machinery, equipment) available to make goods and services.
Natural resources, such as land, are gifts of nature; they are present
without human intervention. Human resources are the quantity and quality
of human effort directed toward producing goods and services. Capital
goods are goods that are produced and used to make other goods and
services. Human capital refers to the quality of labor resources,
which can be improved through investments in education, training and
health. Entrepreneurs are people who organize other productive resources
to make goods and services. They are the innovators and the risk-takers.
People who make goods and provide services are called producers.
Scarcity is the condition
of not being able to have all the goods and services that one wants.
It exists because human wants for goods and services exceed the quantity
of goods and services that can be produced using all available resources.
- Like
individuals, governments and societies experience scarcity because
human wants exceed what can be made from available resources. Choices
involve trading off the expected value of one opportunity against
the expected value of its next best alternative. The choices people
make have both present and future consequences. The evaluation of
choices and opportunity costs is subjective; such evaluations differ
across individuals and societies, and they may change with time. Choices
made by individuals, firms or government officials often have long
run unintended consequences that can partially or entirely offset
the initial effects of the decision.
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