1.1 What is economics? Notes

Economics

The study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited human needs and wants.

Social Science

Any academic field that examines human society and social relationships, focusing on uncovering general principles that explain how societies operate and are structured.

Microeconomics

The branch of economics that studies the behaviour of consumers and firms in making decisions regarding the allocation of resources.

Macroeconomics

The branch of economics that analyzes the economy as a whole by using aggregates.

Scarcity

The idea that available resources (land, labour, capital, entrepreneurship) are limited and unable to satisfy unlimited human needs and wants.

Choice

The act of selecting among alternatives because of the scarcity of resources.

Efficiency

Using scarce resources in the best possible way to avoid welfare loss.

Equity

The condition of being fair and just.

Economic Well-Being

The level of prosperity, economic satisfaction, and standard of living experienced by members of an economy.

Sustainability

Preserving the capacity of the environment and the economy to continue to produce and satisfy the needs and wants of future generations.

Change

The dynamic nature of economic activity, where prices, employment, output, and policies evolve over time in response to internal and external influences.

Interdependence

The concept that economic decision-makers rely on and interact with one another, because no one can be entirely self-sufficient.

Intervention

Typically involving government action, it occurs when the government interacts with the workings of markets.

Factors of Production

All resources or inputs used to produce goods and services.

Land

All natural resources on Earth, including farmland and non-farmland.

Labour

All the physical work and mental skills that humans put into the production of goods and services.

Capital

Human-made factors of production used to produce goods and services.

Entrepreneurship

The unique human skills held by some individuals, including the ability to innovate, take business risks, and pursue new opportunities for running a business.

Opportunity Cost

The value of the next best option that must be forgone or sacrificed in order to acquire something else.

Free Goods

Goods that are not scarce and therefore have no opportunity cost.

Economic Goods

Goods that are scarce and so their opportunity cost is greater than zero.

Resource Allocation

Assigning available resources or factors of production to particular uses selected from various possible options.

Circular Flow of Income

An income flow in an economy where the value of the output produced is equivalent to the total income earned from its production, which is also equivalent to the expenditures spent on purchasing that output.

Leakages

The removal of funds from the income flow, represented by savings, taxes, or imports.

Injections

The addition of funds into the income flow through investment, government spending, or exports.