Introduction to Economic Principles and Systems

Scarcity

Limited resources versus unlimited human wants.

Choice

Decisions made from available alternatives.

Opportunity Cost

Next best alternative forgone when making a choice.

Factors of Production

Resources used to produce goods and services.

Land

Natural resources used in production.

Labor

Human effort used in production processes.

Capital

Machinery and tools for producing goods.

Entrepreneurship

Risk-taking to organize production factors.

Marginal Cost

Cost of producing one additional unit.

Marginal Benefit

Additional benefit from consuming one more unit.

Production Possibilities Curve (PPC)

Graph showing combinations of goods produced.

Productive Efficiency

Using all resources effectively on the PPC.

Allocative Efficiency

Optimal combination of goods desired by society.

Constant Opportunity Costs

Straight line PPC indicates fixed trade-offs.

Increasing Opportunity Costs

Concave PPC shows rising trade-offs between goods.

Idle Factors of Production

Resources not utilized efficiently within the PPC.

Unattainable Production

Points outside the PPC requiring more resources.

Command Economy

Central authority answers economic questions.

Free Market Economy

Supply and demand determine production decisions.

Traditional Economy

Customs and traditions guide economic choices.

Mixed Economy

Combination of market forces and government intervention.

Comparative Advantage

Lower opportunity cost in producing a good.

Absolute Advantage

Ability to produce more than another nation.

Specialization

Focusing on producing specific goods efficiently.

Trade

Exchange of goods and services between countries.

Economics

a social science concerned with the study of scarcity and resource allocation

Law of Increasing Opportunity Costs

Using a PPC, when an economy produces two goods and as it increases the production of one good, it gives up more and more of the other good as it allocates its resources towards more of one good

Opportunity Costs

the next best alternative foregone

Three Basic Economic Questions

Every economy must answer these three fundamental questions: What to produce? How to produce? For whom to produce?

Input Problems

For input problems, you will be given resources (inputs), e.g., how many hours to make a good, how many acres, how much water, etc.

Output Problems

Output problems will give you information/data about how many goods are produced.

Terms of Trade

acceptable terms of trade will fall within the opportunity costs you calculated for the two countries.