block 1 econ

Scarcity

The fundamental economic problem of having unlimited wants and needs in a world with limited resources.

Resource

Anything used to produce goods and services; also known as an input or factor of production.

Opportunity Cost

The value of the single next-best alternative given up when making a choice.

Trade-off

All the options or alternatives you give up when you choose one course of action over another.

Scarcity vs. Shortage

Scarcity is a permanent condition due to limited resources; a shortage is a temporary condition where quantity demanded exceeds quantity supplied.

Production Possibilities Curve (PPC)

A model showing the maximum combinations of two goods an economy can produce given fixed resources and technology.

Law of Increasing Opportunity Cost

As you produce more of one good, the opportunity cost to produce an additional unit increases because resources are not perfectly adaptable.

Sunk Cost

A cost that has already been incurred and cannot be recovered; it should be ignored when making rational future decisions.

Explicit Cost

A direct out-of-pocket monetary payment made for a resource (e.g., tuition, rent, wages).

Implicit Cost

An indirect, non-monetary opportunity cost of using resources you already own (e.g., forgone salary, time).

Factors of Production

The four basic economic resources used to produce all goods and services: Land, Labor, Capital, and Entrepreneurship.

Land

All natural resources provided by nature used in production (e.g., mineral deposits, water, air, timber, oil).

Labor

The physical and mental human effort used in the production of goods and services.

Physical Capital

Man-made physical objects used to produce other goods and services (e.g., machinery, tools, factories, computers).

Human Capital

The knowledge, skills, education, and training that workers acquire to increase their productivity.

Entrepreneurship

The ability to combine land, labor, and capital, take financial risks, and innovate to create new goods or services.

Is Money a Factor of Production?

No. Financial capital (money) is a medium of exchange; it does not directly produce goods or services.

Factor Payment: Land

Rent

Factor Payment: Labor

Wages

Factor Payment: Capital

Interest

Factor Payment: Entrepreneurship

Profit

Positive Economics

An approach to economic analysis that focuses on objective facts, cause-and-effect relationships, and testable statements ("what is").

Normative Economics

An approach to economic analysis that involves value judgments, opinions, and statements about "what ought to be" or "what should be."

How to spot a Positive Statement

Look for statements that can be tested, verified, or disproven with empirical data (even if the statement itself happens to be false).

How to spot a Normative Statement

Look for value-laden keywords such as "should," "ought to," "fair," "unfair," or "too much."