Economics Unit 1

Scarcity

The fundamental problem of having limited resources to meet unlimited wants.

Opportunity Cost

The cost of the next best alternative given up when making a choice.

The 3 Basic Economic Questions

1. What to produce?

2. How to produce?

3. For whom to produce?

Factor of Production: Land

Natural resources used in production (e.g., water, oil, minerals).

Factor of Production: Labor

Human effort, both physical and mental, in the production process.

Factor of Production: Capital

Physical assets like machinery and tools, or financial assets used to produce goods.

Factor of Production: Entrepreneurship

The drive to innovate and combine the other factors to create goods/services.

Production Possibilities Frontier (PPF)

The line on the graph representing the maximum possible output combinations.

Efficient Points (A and B)

Points located on the curve; resources are being used to their full potential.

Underutilization (Point C)

Any point inside the curve; resources are being wasted or not used fully.

Impossible/Overutilization (Point D)

Any point outside the curve; the economy does not currently have the resources to reach this level.

PPC Trade-off

Moving along the curve shows that to get more of one good, you must give up some of the other (Opportunity Cost).

Market Economy

System based on private property, competition, and minimal government intervention.

Command Economy

System where the government controls all resources and production decisions.

Mixed Economy

A blend of private ownership and government intervention (the most common system today).

Adam Smith

The "Father of Economics" who advocated for free markets and the "invisible hand."

John Maynard Keynes

Believed the government should intervene to manage economic cycles and recessions.

Milton Friedman & Frederick Hayek

Both promoted free-market capitalism, individual freedom, and strictly limited government.

Protecting Property Rights

Ensuring individuals/businesses can own and control their assets legally.

Maintaining Competition

Preventing monopolies to ensure consumers have choices and fair prices.

Providing Public Goods

Supplying services like roads and national defense that the private sector won't provide.

Environmental Regulations

Government limits on pollution that restrict how property can be used.

Labor Laws

Government mandates for workplace safety and minimum wage.

Consumer Protection Laws

Rules ensuring products are safe for the public to use.

Socialism

Socialism is an economic and political system where the community or the government owns and manages the "means of production" (factories, farms, and businesses) instead of private individuals.

Communism

Communism is a political and economic ideology aiming for a classless society where the community owns all property, land, and factories, eliminating private ownership.

Free enterprise

Free enterprise is an economic system where private individuals and businesses operate with minimal government intervention, making decisions on production, pricing, and purchasing based on market forces.

Capitalism

Capitalism is an economic system where private individuals or businesses own property and goods, rather than the government.

Circular Flow Model

The circular flow model is a fundamental economic diagram representing the continuous, interrelated movement of money, resources, and goods and services between households and businesses.