Question

for the test: be able to understand, explain, and provide examples (where relevant) of the material covered in this unit including (but not limited to) the following terms and concepts.

1. definition of economics
2. scarcity & resources
3. opportunity cost
4. opportunity cost v. total cost
5. cost / benefit analysis
6. ways to pay for college (rank best to worst)

Explanation:

1. Definition of Economics: Economics is the study of how society allocates its scarce resources. For example, a country decides how much of its land, labor, and capital to use for producing cars versus growing food.
2. Scarcity & Resources: Scarcity means that resources are limited relative to wants. Resources include natural resources like oil, labor (human - effort), and capital (machines, buildings). For instance, fresh water is a scarce resource in some arid regions.
3. Opportunity Cost: It is the value of the next - best alternative forgone. If you choose to study for an exam instead of going to a movie, the enjoyment of the movie is the opportunity cost.
4. Opportunity Cost v. Total Cost: Total cost includes both explicit (out - of - pocket) and implicit (opportunity) costs. Opportunity cost is just one part of the total cost. For example, if you start a business, the total cost includes the money you spend on rent (explicit) and the salary you could have earned at a job you left (implicit/opportunity cost).
5. Cost / Benefit Analysis: It is a process of comparing the costs and benefits of a decision. For example, a company decides whether to launch a new product by comparing the cost of production, marketing, etc. with the expected revenue and profit (benefits).
6. Ways to pay for College (rank best to worst): Scholarships (best as they don't need to be repaid), grants (also don't need repayment), work - study (earn while studying), federal student loans (lower interest rates usually), private student loans (higher interest rates and more strict repayment terms, worst relatively).

Answer:

1. Economics is the study of how society allocates scarce resources.
2. Scarcity refers to limited resources relative to wants; resources include natural, labor, and capital resources.
3. Opportunity cost is the value of the next - best alternative forgone.
4. Total cost includes explicit and implicit (opportunity) costs; opportunity cost is part of total cost.
5. Cost/benefit analysis is comparing costs and benefits of a decision.
6. Scholarships, grants, work - study, federal student loans, private student loans (ranked best to worst for paying for college).