Principle of Economics

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Microeconomics

the study of the economic behavior and decision making of small units, such as individuals, families, and businesses

Macroeconomics

The study of the economy as a whole

Economics is

life, common sense, decision-making, social science, relationships

Economics

The study of how people seek to satisfy their needs and wants by making choices

allocation

the action or process of allocating or distributing something.

opportunity cost

the most desirable alternative given up as the result of a decision

Efficiency

using resources in such a way as to maximize the production of goods and services

PPF (Production Possibilities Frontier)

a curve that shows the maximum quantity of one good that can be produced for each possible quantity of another good produced

4 truths of the PPC

scarcity, increasing opportunity costs, efficiency and underutilization, economic growth

Specialization

the concentration of the productive efforts of individuals and firms on a limited number of activities

circular flow model

A diagram that traces the flow of resources, products, income, and revenue among economic decision makers

factors of production

land, labor, capital, entrepreneurship

households

own the factors of production in free market economies

self-interest

one's own personal gain

competition

the struggle among producers for the dollars of consumers

Key Questions

what to produce, how to produce it, for whom to produce it

free market

an economic system in which prices are determined by unrestricted competition between privately owned businesses.

command economy

an economy in which production, investment, prices, and incomes are determined centrally by a government.

goals of a free enterprise

freedom, efficiency, innovation, growth

advantages of competition/consumer sovereignty

lower prices, better quality, more quantity

effects of competition

regulates the market

effects of self-interest

motivates the market

public interest

the concerns of the public as a whole

interest group

a group of people with common goals who organize to influence government

public policy

the course of action the government takes in response to an issue or problem

private sector

the part of the economy that involves the transactions of individuals and businesses

public sector

the part of the economy that involves the transactions of the government

free rider

a person who receives the benefit of a good but avoids paying for it

Tragedy of the Commons

the tendency of a shared, limited resource to become depleted because people act from self-interest for short-term gain

Externality

an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

R & D Graveyard

loss of funding between development and profits

regulation

government intervention in a market that affects the production of a good

market failure

a situation in which the market does not distribute resources efficiently

3 market failures

free rider, tragedy of the commons, externalities