economics

economics

1. the study of how individuals and nations make choices about ways to use scarce resources to fulfill their needs and wants'
2. Social science that deals with the study of the production, consumption, distribution of goods and services and the transfer of wealth to obtain those goods and services.

relative scarcity

a situation in which unlimited wants exceed the limited resources available to fulfill those wants, you cant buy everything you want

opportunity costs

the highest-valued alternative that must be forgone when a choice is made

allocation of resources

decision on how to divide scarce resources among different uses

goods

tangible products that we use to satisfy our wants and needs

services

actions or activities that one person performs for another

factors of production

land, labor, capital, entrepreneurship

capital goods

Buildings, machines, technology, and tools needed to produce goods and services.

production possibilities curve

A graphical representation that shows the possible combinations of two products that an economy can produce, given that its productive resources are fully employed and efficiently used.

3 basic economic questions

Every economic system must answer the three basic economic questions: What to produce; How to produce it? For whom to produce?

traditional economy

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next--usually subsistence agriculture

market economy

a system based on private ownership, free trade between buyers and sellers, and competition

mixed economy

market-based economic system with limited government involvement.

role of government

To maintain legal and social framework, overcome market failure by providing public goods and services, maintain competition, redistribute income, correct for externalities, to protect individuals and their property rights, stabilize the economy

standard of living

a measure of quality of life based on the amounts and kinds of goods and services a person can buy

inputs

labor, technology, machinery, buildings, and other resources used to produce output

outputs

goods and services that firms produce; productivity

productivity

the quantity of goods and services produced from each unit of labor input; ratio of output to input

economic goals

economic growth, full employment, economic efficiency, price level stability, economic freedom, an equitable distribution of income, economic security, balance of trade

redistribution of income

The transfer of income through government taxation, spending and assistance programs targeted at particular income groups. The goal is to transfer money from higher-income groups to lower-income groups.

capital investments

firms purchase of new machines and buildings. firms invest in capital goods to increase their capacity to produce more goods and services in order to maximize profits

Two main types of economics

Microeconomics focuses on the actions of individuals and industries, like the dynamics between buyers and sellers, borrowers and lenders--small segments of the economy

Macroeconomics, on the other hand, takes a much broader view by analyzing the economic activity of an entire country or the international marketplace.

distribution of income

way in which the nation's income is divided among families, individuals, or other designated groups--Wealth inequality in the U.S. is at its highest levels ever. The top 0.1% own about the same share of wealth as the bottom 90%.

externalities

A "spillover" effect of an action that affects a third party other than the buyer or seller--can be negative (cigarette smoke/pollution) or positive (benefiting from someone's security system)

labor

the mental and physical capacity of workers to produce goods and services

marginal utility

an additional amount of satisfaction or usefulness

thinking at the margin

deciding whether to do or use one additional unit of some resource--time, money, energy, effort, etc.

specialization

Goods and services are produced in better quality, quantity and speed when business focus on producing a few things (mass production and assembly line).

economies of scale

Lower production costs as a result of larger volume of production--monopolies and oligopolies have economies of scale

Macroeconimics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

similarites between macro and micro

both deal with economics, both about making descisions

normative economics

based on opions or value judgements

positive economics

Fact based economic statements

economic activity

volume (or real value) of production, employment, incomes and expenditure in an ecomony

income

money received, especially on a regular basis, for work or through investments.

production

process of converting resources and inputs into goods and services

land

all natural resources used to produce goods and services

capital

resourses made by combining labour and natural resources to create a more sophistocated input in the production process

consumer

A person who purchases goods and services for personal use

economic agents

An entity, such as a person, household, government or business that makes economic decisions

Enterpurnuership

individuals who combine our resources to produce goods and services

what causes relative scarcity

not having unlimited resources

opertunity cost

the value of the next vest alternative that is foregone whenever a choice is made.

calculating opertunity cost

the value of the second best option that you have given up

PPF

illustrates the choices or options available when deciding how to allocate scarce resources. any allocation or resouces to the production of certain good and services will mean that an alternative combination cannot be achieved. used to illustrate opertunity cost

under utilization

Using fewer resources than an economy is capable of using

Subsides

when the goverment gives money to reduce the costs of social needs and production

traditional viewpoint of economy

A second assumption is that consumers have preferences that are ordered and that they make choices based on these rankings. A third assumption is that consumer have full information about their decisions and are therefore able to make informed decisions in every situation.

allocative efficiency

when the mix of goods being produced represents the mix that society most desires

productive efficiency

where output is as high as possible, at the lowest cost - but this is of little value if the goods being produced in this economy are either not the goods wanted by society, or goods that are not in society's best interests.