Economics Unit 1: Scarcity And Economic Systems

Economics

The study of choices.

Incentives

A thing that motivates or encourages one to do something.

Scarcity

We have unlimited wants but limited resources.

Microeconomics

Study of small economic units such as individuals, firms, and markets.

Macroeconomics

Study of the large economy as a whole or economic aggregate.

Theoretical Economics

Economists used the scientific method to make generalizations and abstractions to develop theories.

Policy Economics

There’s theories are then applied to fix problems or meet economic goals.

Positive Statements

Based on facts. Avoids value judgments.

Normative Statements

Includes value judgements.

The Four Factors of Production

Land, Labor, Capital, Entrepreneurship.

Land

All natural resources that are used to produce goods and services.

Labor

Any effort a person devotes to task for which that person is paid.

Physical Capital

Any human made resource that is used to create other goods.

Human Capital

Any skills or knowledge gained by a worker through education and experience.

Entrepreneurship

Ambition leaders that combine the other factors of production to create goods and services.

Institutions

The laws and regulations as well as cultural norms and morals that provide the incentive structure for society.

The Three Economic Questions

1. What goods and services should be produced?

2. How should these goods and services be produced?

3. Who consumer these goods and services?

Traditional Economy

People base their production, trade, and work choices on customs, history, and beliefs.

Command (Centrally-Planned) Economy

The government owns all the resources and answers all the three economic questions.

Free Market Economy

Little government involvement in the economy.

Mixed Economies

Individuals own the resources while government regulated the production and distribution of many goods/services.

Trade-Offs

All the alternatives that we give up when we make a choice.

Opportunity Cost

Most desirable alternative given up when you make a choice.

Explicit Costs

The traditional (out-of-pocket) costs associated with making a decision.

Implicit Costs

The opportunity costa of making a decision.

Marginal Analysis

Making decisions based on increments.

The Law Of Diminishing Marginal Utility

As you consume more of anything, the additional satisfaction that you receive will eventually start to decrease.

Production Possibilities Curve

A model that shows alternate ways that an economy can use it scarce resources.

Productivity

A measure of production that shows the number of outputs per unit of input.