• Scarcity o Definition: situation in which unlimited wants exceed the limited resources available to fulfill those wants
 UNLIMTED WANTS. LIMITED RESOURCES
• Marking choices, we assume that: o People are rational o They respond to economic incentives o Optimal decisions are made at the margin
• ECONOMISTS REASON THAT OPTIMAL DECISION IS WHEN MC=MB
• Marginal o Definition=next unit o Marginal cost=cost for next unit o Marginal benefit=benefit for next unit
• Opportunity cost o Definition= highest valued alternative that must be given up to engage in an activity
 WHAT MUST BE GIVEN UP o Lwer opportunity cost= comparative advantage= aka they give up less so should do the duty o Ex: father has kids sweep the shop for him. He can do it if he wanted to, but gives up more because there are other things he could be doing. Since kids have nothing else to do, they give up lessss bc their time is less valued o How it comes up and how it’s used
• Capital
• Factors of production  o Land o Labor o Capital o Entrepreneurship
 Risk taker
• Positive vs. normative o Positive= what is o Normative= what ought to be
• PPF(Productions possibility frontier) o Why is it curved, and not linear? o CURVED BC LAW OF INCREASING MARGINAL OPPORTUNITY COSTS BC
 INCREASING AUTOMOBILE PRODUCTION BY A GIVEN QUANTITY REQUIRES LARGER AND LARGER DECREASES IN TANK PRODCUTIN.
• Comparative advantage o Refer to handout o Practice ivy’s method!
• Circular flow o Memorize! o Not orange and green one, simplified one o What do the boxes stand for? o What flows from and out of each box?
• ADAM SMITH o His book, title and deets about it o Entire title! o “INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF THE NATIONS”
 Main concepts
• 1) Pin Factory o Division of labor! o Essentially, if labor divided in which every worker specializes in what the