Economics - Chapter 1: Intro

Economics

The study of how scarce, or limited, resources are used to satisfy unlimited wants and needs

Scarcity

The idea that there are too few goods and services to satisfy all wants and needs

Trade-off

Giving up one thing for something else

Value Judgement

The relative importance one assigns to an action or alternative

Opportunity Cost

The cost of a purchase or decision measured in terms of a forgone alternative

Efficiency

Producing a given good or service at the lowest possible cost; Getting the most output from resources

Equity

Justice or fairness in the distribution of goods and services

Resources (factors of production)

Persons and things used to produce goods and services

The 4 Factors of Production

1. Labor

2. Capital

3. Land

4. Entrepreneurship

Labor

Includes all human effort, both physical and mental, going into the production of goods and services

Capital

Includes warehouses, machinery and equipment, and all other goods that are used in the production of goods and services

Land

Includes all inputs into production that originate in nature (oil, iron ore, and fertile acreage, etc.)

Entrepeneurship

The function of organizing or bringing other factors together and taking the risk of failure

Wages (income)

Income return to Labor

Interest (income)

Income return to owners of Capital

Rent (income)

Income return to owners of Land

Profit (income)

Income return to those performing Entrepreneurship

Economic Theory (Econometrics)

A formal explanation of the relationship between economic variables

Model

The setting within which an Economic Theory is presented

What are the 4 attributes that make up economic Modeling?

1. Variables to be explored

2. Assumptions concerning the model

3. Data Collection and analysis

4. Conclusions

Economic Policy

A guide for a course of action

Direct relationship

Two variables move in the same direction

Inverse relationship

Two variables move in opposite directions

Production Possibilities Table (or Curve)

Gives the various amounts of two goods that an economy can produce with full employment and fixed resources & technology

Unemployment

Happens when resources available for production are not being used

How is Unemployment shown on a PPC (graph)?

It is shown as a point to the left of the PPC

Economic Growth

An increase in an economy’s full employment level of output over time

Capital Goods

Goods such as machinery and equipment that are used to produce other goods or services

Consumer Goods

Goods that are produced for final buyers

Macroeconomics

The study of the operation of the economy as a whole

Microeconomics

The study of the individual decision-making units and markets within the economy