Economics Key Concepts: Resources, Scarcity, and Market Structures

Economics

The study of how people fulfill their unlimited wants in the world where resources are scarce

Resources / "Factors of Production" (FoP)

Inputs used to produce a good (g) or services (s) people want

Scarcity

When a resource / FoP is not available in sufficient quantities to satisfy all the various ways a society wants to use it

Social science

Use the methods of science to study human interaction

Economic model

Is a small, simplified version of the real world (like a model airplane)

Ceteris Peribus

Limit out variables

Rational pursuit of self-interest

individuals (as well as firms, governments etc.) look for and pursue opportunities to increase their utility

Utility

Happiness and usefulness

Marginal analysis

Method for finding the optimal among of any activity by weighing the additional benefits and costs of doing that activity

Invisible hand theory

If everyone is acting in the rational pursuit of self-interest, society as a whole tends to benefit as if an invisible hand is guiding society; Came up by Adam Smith

Positive Statement

Direct, data driven

Normative Statement

subjective , opinion "too"

Land

includes all natural resources used to produce goods/services; RENT

Labor

physical/mental efforts to produce goods/services; WAGES

Capital (2 Types)

aides or tools used to produce goods/services; INTEREST

Physical Capital

Buildings, tools, and machines

human capital

Acquired knowledge and skill

Entrepreneurial ability

managerial skills necessary to start a firm with willingness to take risks; PROFIT

MICRO

study of an individual

MACRO

study of the economy as a whole

INTERNATIONAL

how two economies interact with each other

Incentives

rewards or punishment that motivate particular choices

Trade-offs

when you give up something in order to have something else

Transaction costs

time and info gathering required to make a rational decision

Sunk costs

costs that has already been incurred and can't be recovered

Opportunity cost (OC)

value of the NEXT best alternative forgone when a decision is made

4 markers in the economy

households, firms, government, the world

market

Anywhere where buyers and sellers meet together to carry out a beneficial exchange

factor market

the arena of exchange in which firms purchase the factors of production from households

product market

where goods and services are exchanged

financial market

where financial assets are exchanged

society's 3 questions

what, how, and for whom

Production Possibilities Chart (PPC):

A curve showing alternative combinations of production if resources are used fully and efficiently

Economic Efficiency:

A condition that exists when there is no way resources can be recombined to increase the production of one good without decreasing the production of the other

Economic Growth:

Increasing quantity or quality of resources, increasing productivity: Human / physical capital; Technology

absolute advantage

whoever could produce the most

comparative advantage

Whoever produces at the lower OC

4 markers in the economy

4 markers in the economy

households, firms, government, the world