Econ Unit 1: The Market Economy

Economics

The study of how individuals and societies deal with the condition of scarcity

Scarcity

The condition in which unlimited wants are greater than finite resources

Trade-offs

Possible choices we give up when we make a choice

Opportunity Cost

The most desirable trade-off given up in a choice

Explicit Cost

Money paid when a choice is made

Implicit Cost

Value of lost opportunities

Opportunity Cost Formula

Implicit Cost + Explicit Cost

Utility

The benefits/satisfaction received by consuming a good or service, measured in utils

Revenue

Money brought in by business

Land

Factor of production including natural resources

Labor

Factor of production including mental and physical human work

Capital

Factor of production including goods used to create other goods

Entrepreneurs

Factor of production including individuals who start a business or bring a product to market

Capital Goods (Physical Capital)

Goods used to create other goods

Consumer Goods

Goods sold on the market to consumers

Util

Happiness points that make up utility

Marginal Utility

Additional satisfaction from consuming an additional good

Law of Diminishing Marginal Utility

As consumption of a good/service increases, marginal utility decrease, and total utility increases at a decreasing rate

Free Market Economy

Economic decision-making happens through markets, factors of production are owned by individuals or businesses

Command Economy

Factors of production and businesses are owned by the government

3 Economic Questions

1. What to produce?

2. How to produce?

3. For whom to produce?