ECONOMICS STANDARD ONE: Students will analyze the potential costs and benefits of personal economic choices in a market economy [Microeconomics].
Students will understand that:
- Due to scarcity, individuals, families, communities, and societies as a whole, must make choices in their activities and consumption of goods and services.
- Goods, services, and resources in a market economy are allocated based on the choices of consumers and producers.
- Effective decision making requires comparing the additional costs of alternatives relative to the additional benefits received.
How societies survive physically with a limited set of resources is the foundation for the discipline of economics. Because there are not enough resources to satisfy people’s wants, decisions have to be made regarding how resources are going to be used and distributed. By learning to analyze how these decisions are made, students have greater knowledge that will allow them to use their own and society’s resources to achieve the efficient use of resources and the maximizing of benefits relative to costs.
When economists refer to cost/benefit analysis, they mean comparing what one gains and what one gives up when making a choice. The term that describes this process is trade-off. What is given up is an opportunity cost. Gains and losses are not only monetary, but also have psychological components based on what individuals and societies value. Every person beginning early in life has to make decisions related to how to spend time, income, and energy. When people choose one activity rather than another, the next best thing they could have done with these resources is called the opportunity cost.
On a societal level, productive resources available are land, labor, and capital. Understanding that scarcity requires that choices be made and that for every choice there are costs means that people and society can be more deliberate about what to produce, how to produce the good or service, and for whom to produce. An economy requires everyone in a society to engage in activities that involve the marshalling of productive resources, the organizing of work, the generating of income, and the allocating and distributing of goods and services. In the United States mixed market economy these questions are answered through the interaction of consumers, producers, and government. Prices send signals and provide incentives that influence the decisions of both consumers and producers.