1. Scarcity is a situation in which people's wants exceed their resources. Scarcity is a fact of life; wants are unlimited, but resources are not. Because of scarcity, people must make a choice--to forgo, or give up, one thing in favor of another. Economics is the study of how people deal with scarcity. They make purposeful choices with scarce resources and interact with other people when they make their choices.
   
   
2. Economic interaction between people occurs when they trade or exchange goods and services with each other. Economic interactions occur in markets, arrangements where buyers and sellers can interact with each other, and within organizations such as families, firms, universities, and governments.
   
   
3. The opportunity cost of a choice is the value of the forgone alternative that was not chosen. The opportunity cost of football tickets is dinner, and the opportunity cost of studying economics is not doing as well in the physics test.
   
   
4. Economic interactions often involve gains from trade. Suppose that you can afford season tickets for either football or basketball, but not both, and that you would prefer attending half of the football games and half of the basketball games to attending all of either. If you could find someone with similar preferences to trade tickets with, you would both be better off. Gains from trade can occur in markets, such as a ticket agency, or in organizations, such as a family or a college dormitory.
   
   
5. Individual producers also face scarcity and choice; you cannot produce unlimited goods with limited time and resources. Gains from trade allow people to specialize in what they are good at. If a guitarist and a drummer form a rock group, division of labor allows each to concentrate on playing one instrument.
   
   
6. One person or group of people has a comparative advantage in producing one good relative to another good if they can produce with comparatively less time, effort, or resources than another person can produce that good. In the above example, production can be increased if the guitarist plays the guitar and the drummer plays the drums, rather than both trying to play both instruments. (There is one subtle aspect of the idea of comparative advantage: Even if the guitarist plays both the guitar and the drums better than the drummer, the guitarist will be able to play one instrument, presumably the guitar, and the drummer will be able to play the other instrument, presumably the drums, comparatively better than the other musician.)
   
   
7. International trade occurs when individuals who live in different countries trade with each other. There are gains from international trade for the same reasons that there are gains from trade within a country: By trading, people can either better satisfy their preferences for goods or better utilize their comparative advantage.
   
   
8. Production possibilities represent the alternative choices of goods that the economy can produce. Consider an economy that produces two goods, steel and food. If it produces more of one, it must produce less of the other. The opportunity cost of producing more steel is the value of the forgone food. The idea of increasing opportunity costs is that as steel production rises, the value of the forgone food increases. The rate of decline in food production increases as we produce more steel.