Economics studies the choices that people, businesses and governments make given that they have scare resources. Why Do People INteract?

... Economics studies the choices that people, businesses and governments make given that they have scare resources. ________________________________________________ WHY DO PEOPLE INTERACT? Marginal Rate of Transformation Opportunity Cost COMPARATIVE ADVANTAGE ABSOLUTE ADVANTAGE THE THEORY OF COMPARATIVE ADVANTAGE: Argues that specialization (in the good in which an individual or country has a comparative advantage) and trade will benefit all trading parties, even those that may be absolutely more efficient producers. AND THIS IS WHY PEOPLE TRADE OR INTERACT THE ROLE OF MONEY _______________________________________________________ THE STRUCTURE OF THE ECONOMY SUPPLY AND DEMAND The price of an item is the opportunity cost of that item. DEMAND SUPPLY A Change in Demand Change in the entire relationship between the quantity demanded and the price of a good. Factors that lead to a change in demand 1. Price of other goods a. Substitutes b. Compliments 2. Income and wealth a. Normal goods b. Inferior goods 3. Tastes and preferences 4. Expectations about future a. Future price increase b. Future increase in income 5. Number of households (or population) A

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