Applied Economics

Economics

A social science that deals with the allocation of scarce resources to satisfy man's unlimited needs and wants.

Scarcity

Insufficiency of resources to meet all the needs and wants of a population.

Relative Scarcity

A good is scarce compared to its demand.

Absolute Scarcity

Supply is limited.

Trade Off

Choosing one thing over the other possibilities.

Opportunity Cost

The value of the best foregone alternative.

Economic Resources

Also known as factors of production; resources used to produce goods and services.

3 Economic Resources

Land

Capital

Labor

Land

Soil and natural resources, with rent as payment for landowners.

Labor

Physical and human effort exerted in production, with wage as income received.

Capital

Man-made resources used in the production of goods and services, with interest as income.

Social Science

Study of society and how people behave and influence the world around them

Economic as Social Science

Economics studies how individuals make choices in allocating scarce resources to satisfy their unlimited wants based on their social behavior

Macroeconomics

Division of economics that focuses on the overall performance of the entire economy.

Microeconomics

Concerned with the behavior and decisions of individual entities such as consumers and producers.

Basic Problem of Society

What to produce

How to produce

For whom to produce

Economic Systems

Through which society determines the answer to the basic economic problems

Traditional Economy

Methods are stagnant therefore, not progressive; practiced in indigenous society

Command System

Authoritative System; decision making is centralized in government

Market Economy

Most democratic form of economic system;

Economics as an Applied Science

Using tools such as logic, mathematics, and statistics

Scientific Method

A method of inquiry from identifying a problem and answering quetions through conclusion

Positive Economics

Deals with “what it is”; an overview of what is happening in the economy that is possibly far from ideal

Normative Economics

Deals with “what should be”; focuses on policy formulation that will help to attain the ideal situation

Gross National Product

The market value of final product produced by the resources of the economy

Gross Domestic Product (GDP)

The market value of final products produced within the country

Market

an interaction between buyers and sellers; where the consumers buy and sellers sell

Goods Market

where we buy consumer goods

labor market

where workers offer services

Financial Market

where securities of corporation are traded

Ceteris Paribus

All other related variables are held constant except those being studied.

Non-Price Determinants of Demand

Variables other than price that influence demand, such as income, taste, and expectations.

Law of Demand

As price increases, the quantity demanded of that product decreases, other things held constant.

Supply

The quantity of goods that a seller is willing to offer for sale.

Supply Schedule

It shows the different quantities the seller is willing to sell at various prices.

Law of Supply

There is a direct relationship between the price of a good and the quantity supplied.

Market Equilibrium

A state of balance when demand is equal to supply.

Elasticity

A measure of how much buyers and sellers respond to changes in market conditions.

Price Elasticity of Demand

Measures the responsiveness of demand to a change in the price of the good.

Income Elasticity of Demand

Measures how the quantity demanded changes as consumer income changes.

Cross Price Elasticity of Demand

Measures how quantity demanded changes as the price of a related good changes.