Econ Ch 1

Scarcity

Consumers wants exceeding their resources

Economics

The study of how to best allocate scarce resources among completing uses

Opportunity Cost

When you make a choice, you must sacrifice next-best alternative

Factors of Production

• Resource inputs used to produce goods and services (e/g/, land, labor, capital, and entrepreneurship)

• Scarcity

• Choice

• Opportunity cost

Three basic economic questions

1. What to produce

2. How to produce

3. For whom to produce

production possibilities

the alternative combinations of goods and services that could be produced in a given time period with all available resources and technology

land

natural resources

labor

number and skills of workers

capital

machinery, buildings, and networks

Entrepreneurship

skills in creating products, services, and processes

Optimal mix

the question of what to produce is about choosing one (best possible) mix of output at any given time based on the value judgements of a society

Efficiency

getting the most in using factors of production

For whom to produce

focuses on how an economy’s output is distributed across members of society

Gross Domestic Product (GDP)

is the total value of final goods and services produced within a nation’s borders in a given time period. It only includes products produced for market.

Real GDP

the inflation adjusted value of GDP or the value of output measured in constant prices (nominal GDP is in current $)

Per capita GDP

total GDP divided by total population

Consumer goods

anything a consumer buys (durable goods, nondurable goods, services)

druable goods

cars, appliances, furnature

nondurable goods

clothes, food, gasoline

services

medical care, entertainment, education

investment goods

plant, machinery, and equipment used in the business sector to maintain or expand production possibilities. Only tangible investment is counted, not financial investment (ownership transfer)

Government expenditure

governments purchase resources to police the streets, teach classes, write laws, and build highways

Net exports

= exports - Imports