Basic Economics Concepts: Scarcity, Trade-Offs, and Market Systems

Need

Something required for survival (food, water, shelter)

Want

Something you desire but can live without (ex: nice car, new clothes)

Economics

Study of how people use limited resources to satisfy unlimited wants

Scarcity

Limited resources compared to unlimited wants

Shortage

When demand is greater than supply at a certain price

Goods

Physical items you can buy (ex: food, clothes, phone)

Services

Actions performed for someone (ex: haircut, plumbing)

Entrepreneur

Person who combines resources to start a business and take risks

Land

Natural resources used to make goods (ex: trees, water)

Labor

Human effort used to produce goods/services

Physical Capital

Man-made tools used to produce goods (ex: machines)

Human Capital

Skills and knowledge gained through education/experience

Trade-Off

Giving up one thing to gain another

Opportunity Cost

The next best thing you give up when making a decision

Thinking at the Margin

Deciding how much more or less to do

Marginal Cost

Cost of adding one more unit

Marginal Benefit

Benefit of adding one more unit

Traditional Economy

Based on customs, habits, and traditions

Market Economy

Economic decisions made by individuals (buyers & sellers)

Capitalism

Another name for a market economy

Market

Place where buyers and sellers exchange goods/services

Specialization

Focusing on a limited number of tasks to be more efficient

Competition

Rivalry among businesses to attract customers (keeps prices fair and quality high)

Adam Smith

Economist who wrote The Wealth of Nations

The Wealth of Nations

Book explaining how markets work and why they succeed

Self-Interest

Acting in your own best interest

Profit Motive

Desire to earn money that drives decisions

Opportunity Cost Example

Studying vs sleeping → cost of studying = lost sleep

Trade-Off Example

Sleeping late vs better test grade