Unit 1: Introduction to Economics

Scarcity

Resources and factors of production are finite, whereas human wants are unlimited.

Basic economics problem

Scarcity.

Opportunity cost

The value of the next best alternative that is foregone.

Macroeconomics

Examines the economy as a whole to obtain a broad picture of the economy.

Microeconomics

Study of individual decision makers, like consumers and firms, on how these decision makers make choices and the consequences of their decisions.

Economic Systems

The systems with which society allocates scarce resources.

Factors of production

Inputs used to produce goods and services wanted by people. Land, labor, capital, entrepreneurship.

Land as a factor of production

Natural resources

Labor as a factor of production

The work put in by humans to produce a good or service.

Capital

Tools and equipment used to produce goods/services.

Entrepreneurship

Human risk taking and creativity taken to start a business.

Efficiency

Best possible use of resources are used to produce goods and services, aiming to mee the wants of society.

Choice

Study of choices made due to limited resources.

Sustainability

Long-term maintenance/viability of any particular activity or policy.

Intervention

Government becoming involved with the workings of markets.

Free good

Any good that is not scarce.

Economic good

A good that is scarce

Three basic economic questions

What/how much to produce
How to produce
For whom to produce

Types of economic systems

Free market economy
Planned/command economy
Mixed economy

Free market economy

No government intervention; All decision making and ownership by private firms.

Planned/command economy

All decision making and ownership by government.

Mixed economies

Combine government decision making and private decision making.

Economies distinguishedunder three criteria

Resource ownership
Economic decision making
Rationing systems

Production possibility curve

Shows the maximum possible production of two goods an economy can produce given its factors of productions.

Conditions to produce the greatest possible output

Resources must be fully employed and used efficiently.

Positive statements

Statements that declare what something is, was, or will be

Normative statements

Statements that declare what something should be; Cannot be true or false.

Circular flow of income

Leakage

Savings, taxes, imports, reduce total money in an economy

Injection

Investment, government spending, exports, increase total money in an economy.