Economics - Unit 1

Unit 1 - Introduction to Economics

scarcity

limited supply of something

resources

inputs used to produce goods and services wanted by society

factors of production

land, labor, capital, entrepreneurship / enterprise

resources and needs

limited resources but unlimited needs

economics questions

what / how / for whom to produce?

land

physical land and natural resources

labor

physical and metal effort

opportunity cost

next best alternative that must be given up in order to obtain something else

physical capital

man made items

financial capital

money and financial investments

enterprise

combining the factors of production

entrepreneurs

set up business enterprises

sustainability

maintaining the ability of the environment and economy to continue producing

human capital

skills, abilities, and knowledge from people

natural capital

everything included in land

free good

a good that is not scarce, no opportunity cost

government intervention

government changes allocation of resources from what markets could have achieved in their own

growth in production possibilities

increases in quantity of resources and efficiency

injections

investing, government spending, exports

leakages

savings, taxes, imports

positive economics

predicts and describes economic events through hypothesis

normative economics

based on beliefs about what should happen

utility

satisfaction derived from consuming something

marginal

extra or additional

Say’s law

supply creates its own demand, economy goes to full employment in the absence of government intervention

market economy

private, driven by self interest, demand x supply = price

command economy

government owns some industries, manages social welfare programs, safeguards people and markets

predatory pricing

lowering prices to push out competition

ceteris paribus

all other things being equal

empirical evidence

observe change using 5 senses

logic

using reason to draw conclusions

theory

general explanation of a set of irrelative events

refutation

contradicting something

Adam Smith

believed in free markets, people acting in their own self intrest and everyone would benefit

Karl Marx

based on labor theory of value and surplus value (price paid was more than wages paid to laborer, remaining surplus would go to owner)

John Maynard Keynes

economy would not get back on its own, a push from government intervention would get people to work, and more money circulating