Ms.Persaud – Lesson 2

Semester 2 – Feb 2013

The Basic Economic Problem

Arctic Survivor storyWhat made it difficult to survive?Give you another chance to work on it today

15 minutes before I give you the materials15 minutes to work on the task.

Review of yesterday

SCARCITY – relatively unlimited needs and wants with limited resources

The study of ECONOMICS is the social science that studies how people choose to use scarce resources to satisfy relatively unlimited needs .

Economics can therefore be defined as the study of how to distribute scarce resources among competing wants.

What is the basic economic problem?

ScarcityUtilityOpportunity CostMicroeconomicsMacroeconomics

Terms to know

Economists assume that people act in their own self interest, meaning that people are most concerned by the personal satisfaction they will gain from the choices they make.

Helps to explain consumers personal choiceThe term used for this satisfaction or

pleasure one derives from a good or service is called utility.

Utility

The other major factor used when making economic choices is cost. When making the choice to obtain one item, it prevents you from choosing an alternative item.

There is therefore a cost associated with not selecting the alternative. When economists refer to cost they are not referring to money. The term used is opportunity cost and it measures the utility that could have been gained by the choosing the alternative.

Opportunity Cost

From the Greek word, micro, meaning small, microeconomics deals with the behaviour of individual participants in society (e.g. consumers and businesses).

Examples of microeconomic choices might be, how much are you willing to pay for a hamburger and soft drink at the school cafeteria? How much is the school cafeteria willing to sell those items for?

Microeconomics

From the Greek word, macro, meaning big, macroeconomics deals with the behaviour of entire economies and the decisions that society must make as a whole.

Examples of macroeconomic choices might be how should a country deal with increasing levels of unemployment or a rapid decline in the value of its currency.

Macroeconomics