● Fundamental Economic Problem:
○ Scarcity: Having a limit of resources
○ The world has unlimited wants but limited resources
■ Scarcity forces people to make choices. Everyone can’t have everything
that they want.
○ Econ = The least amount of cost.
○ #1 Each choice has its pros and cons: Tradeoffs
■ Most choices have unintended consequences and problems
■ To get/do something you must give something else up (“Choosing is
refusing – Multitasking=No)
○ #2: Opportunity Cost (OC): The cost of doing something is what you are giving
up in order to get it.
■ #1 against #2, OC would be choice #2 that you didn't do
○ #3: Rationality (Brain) > Emotionality (Feelings)
■ Rationality = Thinking Marginally (Considering the future impact)
● Priceline Discounts: Discounting goods just to get rid of it $50 >
$0
○ Marginal (Cost Benefit) Analysis:
■ If pros outweigh costs, civics says you should do it.
○ #4 Incentives are important
■ People will modify their behavior if incentives are offered (Think costco,
bogos, etc.)
● There are good and bad incentives
○ #5 Trade can benefit everyone
■ People can specialize in what they do best, then ready for what they want
■ Free trade and competition leads to innovation and better deals
○ #6: Markets are the best means for trade
○ #7 Markets need oversight (rules, government regulation etc.)
■ This improves equity (fair) and efficiency
● Ultimate Goal of Economics:
○ Common Fundamental problem of life = Scarcity
○ Economics are only concerned about material welfare
● 8/18/2026
● #8 Our standard of living is influenced by our ability to produce goods and services
○ Productivity changes across countries (mainly due to differing levels of
technology, advancement, education/skill levels of workers, and type of work
involved.
● #9 Prices rise due to too much money in circulation (Inflation)
○ The more of something that exists, the less valuable it is.
■ Think Diamonds
● Ultimate goal in Life
○ Maximize Utility (Satisfaction)
○ Everything in life exhibits diminishing marginal utility
■ The more and more of something you have the less satisfaction it results
in.
■ Diminishing Marginal Returns: At a limit it becomes too much and
productivity, etc. decreases
8/19/2026
● The Production Possibilities Frontier
● There is a graph, y axis - Production of Guns, x axis - production of butter
○ There is a point H, most guns but minimal butter
○ Point A, & B, Tons of guns and butter.
■ B has a little bit of both, a has a lot of both but is past the curve line
○ Demonstrates possible levels of output with current resources, productivity levels,
levels of technology
■ Inefficient (B) - Obvious capacity to make more
■ Possible (H, D) - Maximum Productivity
■ Not Feasibly Yet (A) - need more resources
○ Curves adjusts based on circumstances
● If numerical is provided, use it, (Plot it).
● If none is given a simple curve works
● The Circular Flow Model
○ Households (People) sell the factors of production (Land, labor, capital) and buy
goods/services
○ Businesses sell goods and services and buy the factors of production
● Two Markets
○ Market for factors of Production
○ Market for goods and services
● MicroEconomics: Focuses on individuals
● Macroeconomics: Focuses on the greater population
● Positive vs Normative Statements
○ Positive statements: Descriptives, backed up by evidence and data
○ Normative statements: Subjective, cannot be proved (Opinions)
■ Our goal is to select the course of action that best maximizes utility:
Which is often disagreed upon (opinion
● Equity: EQual, being for the people
● Efficiency: Squeezing the most out of our scarce resources.
○ Trade offs: They are opposites so you cannot get the most of both,
● Extellities
○ There are positives and negatives that affect ones decision making