Basic Economic Concepts

Economic Goals

1. Economic growth: produce more and better goods and services

2. Full employment: suitable jobs for all citizens who are willing and able to work

3. Economic Efficiency: achieve the maximum production using available resources

4. Price-Level stability: avoid large fluctuations in the price level (inflation + deflation)

5. Economic freedom: businesses, workers, consumers have a high degree of freedom in economic activities

6. Equitable distribution of income: try to minimize gap between rich and poor

7. Economic security: provide for those whoa re not able to earn sufficient income

8. Balance of trade: try to seek a trade balance with the rest of the world

Basic Economic Problem

1. Society’s (individuals and businesses) material desires are hard to meet

2. Economic resources are SCARCE

Types of Resources

1. Land: natural resources

2. Physical capital: machinery, equipment

3. Human capital/Labor: education

4. Entrepreneurship

   1. takes initiative to combine resources to produce a good or service

   2. makes basic business-policy decisions

   3. innovation

   4. risk bearer

Factors of production (objectives that must be satisfied to reach full production)

1. Full employment: use all available resources

2. Full production: use resources efficiently

Law of Increasing Opportunity Cost

the amount of a good which has to be sacrificed for each additional unit of another good is more than what was sacrificed for the previous unit 

why?: Economic resources are not completely adaptable to alternative uses, so the resources will yield less of one product

Determinants for Production

One must compare marginal benefits and marginal costs to determine the best or optimal output mix on the Production Possibilities Curve