Main topics/concepts * Scarcity * Scarcity means that society has limited resources and cannot produce all the goods and services people want.

* Opportunity costs * The opportunity cost of an item is what you give up to obtain that item.

* Equity–efficiency trade off * Individual level * Allocation of time between work and leisure * Society level * Guns vs. Butter is the classic trade-off between production of consumption goods and military spending

* The efficiency versus equity trade-off * Efficiency: Society gets the most that it can from its scarce resources. * Equity: The benefits of those resources are distributed fairly among the members of society.

* Models: Circular flow diagram and PPF * The circular-flow diagram shows how dollars flow through markets among households and firms in an economy * Firms (Produce and sell goods and services) * Households (Buy and consume goods and services.) * The production possibilities frontier (PPF) is a graph showing the combinations of output that an economy can possibly produce given * the available factors of production; and * the available production technology.

* Normative vs. positive statements * Positive statements are about how the world is. * Normative statements are about how the world ought to be. * When economists make normative statements, they are acting more as policymakers.

* Gains from trade * Individuals and nations rely on specialized production and exchange as a way to address problems caused by scarcity. * Economically self-sufficient (do everything ourselves); or * specialize and trade with others, leading to economic interdependence. * Patterns of production and trade are based upon