Defining Economics

Read this section to encounter the three fundamental questions that economists face and to learn about opportunity costs. Attempt the problems presented in the "Try It" section, and note how eventually every decision boils down to choosing between competing alternatives.

Key Takeaways

  • Economics is a social science that examines how people choose among the alternatives available to them.
  • Scarcity implies that we must give up one alternative in selecting another. A good that is not scarce is a free good.
  • The three fundamental economic questions are: What should be produced? How should goods and services be produced? For whom should goods and services be produced?
  • Every choice has an opportunity cost and opportunity costs affect the choices people make. The opportunity cost of any choice is the value of the best alternative that had to be forgone in making that choice.