Economics: Scarcity, Choice, and Incentives
The starting point: scarcity
Why economics exists
Economics studies how people, businesses, and governments make choices when resources are limited. Scarcity means that not everything we want can be fully satisfied at once. Because of scarcity, every choice involves trade-offs.
Core economics terms
What does scarcity mean?
Scarcity is the basic reason people must make trade-offs.
Correct answer: Resources are limited relative to wants
What is opportunity cost?
Opportunity cost is central to economic reasoning.
Correct answer: The value of the next best alternative you give up when making a choice.
Markets and behavior
How markets work
A market is a place where buyers and sellers interact, either in person or online. Prices often help coordinate decisions. When demand rises and supply is limited, prices may increase; when supply increases, prices may fall.
What is an incentive?
Incentives influence how people behave in economic situations.
Correct answer: A reason that encourages a decision or action
Why do people face trade-offs?
Trade-offs are a direct result of scarcity.
Correct answer: Because resources are limited and choosing one option means giving up another.