eco "the basic economic problem"

production

: using resources to make and sell goods or services

needs

: the necessary items (food, water, shelter, clothing)

wants

extra items we desire (games, toys, a big house, cake)

free good

an unlimited good

economic good

economic good: a good that is limited

consumption

consumption: using up goods and services to satisfy our wants and needs

consumer goods

consumer goods: satisfy a consumer’s want (buying a pencil case for Sahana’s birthday)

capital goods

capital goods: used to produce other items (screwdrivers, nails, power stations, tractors)

reward for land

(owners of land get paid rent)

reward for labour

(labourers get wages)

reward for capital

interest

reward for enterprise

profits (entrepreneurs earn profits from their ventures)

geographically mobile

refers to the ability of factors of production, such as labor, to move easily from one location to another in response to economic incentives or opportunities.

occupationally mobile

refers to the ability of workers to change jobs or professions easily, adapting to shifts in demand for skills and employment opportunities.

Opportunity cost

the value of the next best alternative forgone when making a decision.

What does a PPC show?

A Production Possibility Curve (PPC) shows the maximum possible output combinations of two goods or services that an economy can produce given its resources and technology.

production at a point above the ppc will be possible if:

the firm increases the quality of the resources

or the economy experiences technological advancement

or the firm employs more resources

capital good

a good used in the production of goods or services.

consumer good

A product that is purchased for consumption by the average consumer

ppc moves outward when:

more capacity to produce stuff

3 economic questions

• what to produce

• how to produce it

• for whom to produce (target audience)

free market economic system

An economic system where prices are determined by unrestricted competition between privately owned businesses. It emphasizes minimal government intervention and allows supply and demand to dictate production and pricing.

mixed economic system

An economic system that blends elements of both capitalism and socialism, allowing for both private enterprise and government intervention in the economy.

planned ecnomic system

economic system where the government makes all the decisions

market equilibrium

demand = supply

market disequilibrium

demand >< suppy

what does price mechanism determine

determines for whom, what, and how things are producedin a market economy through the interaction of supply and demand.

demand

want and willingness of consumers to buy a product

individual demand

demand of just one customer

market demand

total demand from all customers willing and able to buy a product

2 axii of the demand curve

price and quantity demanded

ceteris paribus

used to say “all other factors remain the same”

increase in demand

consumers demand more at every price point

how does increase in demand affect price?

more the demand, more the price

fall in demand causes a ______ shift

left

rise in demand causes a ______ shift

right

causes for change in demand

• incomes (or change in income tax)

• substitutes

• trends

• change in population

• etc

supply

amount of a product producers are willing & able to make

• as price rises, supply _____

increases

market supply

market supply: sum of all individual supplies for a product

individual supply

the supply of just one firm or manufacturer

reasons for change of supply

a change in CELL (factors of production)

business optimism / expectations

global factors (natural disasters)

supply curve’s slope

upward sloping

increase in supply shifts supply curve _____

outwards or to the right

decrease in supply shifts supply curve _______

inwards or to the left