Economics Topic 1

Economics

Economics

Economics is the study of how to make the best possible use of scarce or limited resources to satisfy unlimited human needs and wants.

Limited Resources

The finite amount of resources available to humans to satisfy their unlimited needs and wants.

Scarcity

The limited availability of economic resources relative to society’s unlimited needs and wants of goods and services.

Opportunity Cost

The next best alternative foregone when an economic decisions are made.

Efficiency

The optimal use of resources to minimize resource waste.

Equity

The fair distribution of resources, rather than equal distribution.

Economic Well-Being

The multidimensional concept relating to the prosperity level and quality of living standards of people.

Sustainability

Using resources in a way that does not compromise the needs of future generations.

Change

The constant changes in the economic world that economists need to be aware of in their models.

Interdependence

The concept that economic actors interact with each other and are interdependent.

Intervention

When market powers fail to meet social goals, governments intervene to control choices.

Central Economic Problem (Scarcity)

It is a problem that refers to the issue of scarcity, where there are limited resources but unlimited wants and needs.

Wants

Desires for goods and services expressed as consumer demand in markets.

Needs

Goods and services required to meet basic needs.

Resources

Factors of production used to create goods and services.

Land

One of the four factors of production that refers to the natural resources with which an economy is endowed; also referred to as “gifts of nature”.

Labor

Skilled or unskilled human efforts used in production.

Capital

Machinery, tools, or money used to make a profit.

Entrepreneurship

The combination of all factors of production to organize planning and allocation.

Basic Economic Questions

What to produce? How to produce? For whom to produce?

Allocation of Resources

The process of dividing factors of production to produce goods and services in an economy.

Economic Goods

An economic good is one that is scarce and whose use involves an opportunity cost.

Free Goods

Goods such as air or sea water that are not considered scarce and thus do not have an opportunity cost.

Production Possibilities Curve (PPC)

A graphical model of the two products that an economy can produce given its resources and technology.

Circular Flow Model

A graphical model that explains the flow of money in a closed economy.

Injections

The inflow of money into the economy, such as government spending, financial sector incentivization, and exports.

Leakages

The outflow of money from the economy, such as taxes, savings, and imports.

Macroeconomics

The study of aggregate economic activity. It investigates how the economy as a whole works.

Microeconomics

The study of the behavior of individual consumers, firms, and markets and the determination of market prices and quantities of goods, services, and factors of production.