1.1 What Is Economics? LO 1
Scarcity is a fundamental problem faced by all economies. Not
enough resources are available to produce all the goods and services
that people would like to consume.
Scarcity makes it necessary to choose. All societies must have a
mechanism for choosing what goods and services will be produced
and in what quantities.
The concept of opportunity cost emphasizes the problem of scarcity
and choice by measuring the cost of obtaining a unit of one product
in terms of the number of units of other products that could have
been obtained instead.
A production possibilities boundary shows all the combinations of
goods that can be produced by an economy whose resources are fully
and efficiently employed. Movement from one point to another along
the boundary requires a reallocation of resources.
Four basic questions must be answered in all economies: What is
produced and how? What is consumed and by whom? Why are
resources sometimes idle? Is productive capacity growing?
Issues of government policy enter into discussions of all four
questions.