economics

Scarcity

The most important word in economics; it means there is not enough stuff for everyone because people want more things than exist in the world.

Need

Something you MUST have to survive, such as food, water, and shelter/housing.

Want

Something you would like to have but will not die without, such as candy, toys, or jewelry.

Good

Any physical item you can touch and hold, such as a hat, bread, or a shirt.

Service

Work that someone else does for you which cannot be held, such as a haircut, teaching, or fixing a car.

Value

How much something is worth to a person; for example, a bottle of water is worth more to a thirsty person than someone who just finished drinking.

Utility

The measure of how useful or satisfying something is to a person (e.g., an umbrella has high utility during a rainstorm).

TINSTAAFL

Stands for There Is No Such Thing As A Free Lunch; it means everything costs something because someone, somewhere, always has to pay for resources or time.

The 3 Basic Economic Questions

1. WHAT to produce?
2. HOW to produce?
3. FOR WHOM to produce?

Factors of Production

The 4 essential resources needed to make anything: Land, Labor, Capital, and Entrepreneur.

Land (Factor of Production)

All natural resources from the environment/Earth, such as soil, water, minerals, trees, coal, and oil.

Labor (Factor of Production)

The people doing work, providing energy, and using tools to create goods or provide services.

Capital (Factor of Production)

The tools, machinery, and buildings used to produce goods. IMPORTANT: In economics, money is NOT considered capital.

Entrepreneur (Factor of Production)

A person who starts their own business, organizes the other factors of production, and takes risks to make a product.

Opportunity Cost

The value of the next best alternative (the second choice) that you give up when you make a choice.

Production Possibilities Curve (PPC/PPF)

A diagram that shows all possible combinations of two goods or activities that can be produced using limited resources efficiently.

Efficiency on a PPC

Points located ON the curve represent the maximum possible production and efficient use of all resources.

Inefficiency on a PPC

Points located INSIDE (below and to the left) of the curve; resources are being wasted or not used to their full potential.

Unattainable Points on a PPC

Points located OUTSIDE (above and to the right) of the curve; current resources are insufficient to reach this level of production.

Economic Growth on a PPC

This occurs when the entire curve shifts outward (to the right) due to more resources, better technology, or increased human capital.

Shape of the PPC Curve

The curve is often "bowed out" because resources are not equally good at making both things, causing the opportunity cost to increase.

5 Consumer Rights

1. Right to Safety
2. Right to Be Informed
3. Right to Choose
4. Right to Be Heard
5. Right to Redress

Circular Flow: Factor Market

The market where businesses buy resources (Land, Labor, Capital) from households.

Circular Flow: Product Market

The market where households spend their money to buy goods and services from businesses.

Productivity

The amount of output (stuff made) per unit of time or per worker.

Human Capital

The skills, knowledge, and experience possessed by workers; education and training increase this.

Division of Labor

A production method where each worker does one specific, specialized task to make work faster and more efficient.

Specialization

When a person, business, or country focuses on producing one type of product better and faster than others.

Economic Model

A simplified graph or drawing (like the PPC or Circular Flow) used to understand how the economy works.

Cost-Benefit Analysis

A process of comparing the benefits (pros) and costs (cons) of a choice to see if the benefits outweigh the costs.

Free Enterprise Economy

An economy where people can start their own businesses and make choices with limited government control; also known as Market Economy or Capitalism.

Trade-offs

The act of giving up one thing to get another.

Incentive

A reward or reason that motivates people to do something, such as a sale or a bonus for good work.

Wealth

The total value of all money and valuable assets (like houses, cars, and precious metals) that a person owns.

Paradox of Value

The contradiction where essential items (like water) have low market value, while non-essential items (like diamonds) have high market value due to scarcity.

Relationship between Education and Income

Higher education typically leads to more human capital, which results in higher productivity and therefore higher lifetime earnings.