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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.
