If you have $100 in your pocket, you have to decide how to use these resources. If a factory owner has three workers, then she must decide how to use her workers. If a farmer has ten acres of land, she must decide how to use those ten acres. Labor represents human resources, like manual work, capital represents anything that can help produce these resources, such as education and machines. Land represents natural resources, such as oil and coal. Scarcity forces individuals, firms, and other members of society to decide how to use the three factors of production: land, labor, and capital. The basic economic problem that necessitates choices is scarcity, which occurs when limited resources are not sufficient to meet demand. Note that the jacket and TV together are not the cost because there can only be one opportunity cost.Īll participants in an economy must make choices. For example, if you have $500 and you go to the mall and see a game system, a jacket, a television each costing $500, which would you choose? If you rank the game system as your first choice, the jacket as your second, and the TV as your third choice, which would be the opportunity cost? The jacket is the opportunity cost because it is your next best alternative. The term opportunity cost refers to the next best alternative. The cost is what has been relinquished, and the benefit is what has been gained. When making a choice, you automatically have created a cost and a benefit. Microeconomics is the branch of economics that examines the choices and interaction of individuals producing and consuming one product, in one firm or industry. Macroeconomics is the branch of economics that examines the behavior of the whole economy at once. Economics is a social science involving the study of choices and what necessitates those choices. When thinking of economics, you should be aware of one simple synonym - choices. AP Test Prep: Humanism in the Renaissance.AP Test Prep: The Expansion of Suffrage.AP Test Prep: Evolution of the Mass Media.AP Test Prep: English Composition Essay Scoring.AP European History: World War I (1914-1918).AP English Language and Composition: Reading Passages.AP English Language and Composition: Pace Your Essay Writing.AP English Language and Composition: Multiple-Choice Section.AP English Language and Composition: Kinds of Questions.AP English Language and Composition: How Your Essays Are Scored.AP English Language and Composition: Exam Format.AP English Language and Composition: Essays.AP Economics: What Are the Functions of Money?.AP Biology: Insight into Free-Response Questions.AP Biology: Coevolution of Predator and Prey.

Ap macroeconomics summary