Unit 1: Basic Economic Concepts

economics

The study of how resources are allocated and who gets what goods and services; a social science which looks at how resources are allocated

scarcity

every society deals with this problem; resources to fill people’s needs and desires is limited

3 Basic Q’s

what to produce?
how to produce?
for whom do we produce?

factors of production

land, labor, capital, entrepreneurship

opportunity cost

the next best alternative forgone

production possibilities curve

a model that shows all the combos of two goods that can be produced in an economy given its fixed resources (also can be PPF)

straight: constant opportunity cost (similar goods)
curved: varied opportunity cost (vastly different goods)

law of increasing opportunity costs

as a country produces more of one good, the opportunity cost increases due to available resources in an economy

productive efficiency

when an economy is on the PPC/PPF

allocative efficiency

when a country produces the combo of goods and services that the society most wants

tradeoffs

involves a sacrifice that must be made to get a certain product or experience

central/command economy

answers the basic economic questions in a way that is centralized around government control; historically fails because governments are not the best representation of people’s desires

traditional

produces what is always produced

market

let market forces of supply & demand decide; consumers = willing to pay → market will supply
no gov’t control; private ownership of resources = BIG

mixed

combo of market & command economies (very popular)
free market prevails & gov’t supports free market allocation
gov’t also reallocates to fit specific goals

absolute advantage

what a country has when it can produce a good with fewer resources than another (they should specialize in this good)

comparative advantage

what a country has when it can produce a good at a lower opportunity cost than another country