Basic Economic Concepts

economics

the study of the behavior of people who have to make choices because of limited resources

macroeconomics

the study of the economy as a whole (the aggregate)

microeconomics

the study of the economy in relation to the individual

basic economic problem

unlimited wants and limited resources

scarcity

cannot get all that you want at 0 price

4 categories of resources

land, labor, capital, and entrepreneurial ability

wages

payment for labor

interest

payment for capital

rent

payment for land

profit

payment for entrepreneurial ability

resources

something used to make products or provide a service

free good

a good for which there is no scarcity (does not exist)

economic good

any good that is scarce (all goods)

economic bad

any item for which we would pay to have less

rational self interest

a situation where people are making choices "you choose what is best for you"

positive analysis

when research is presented with only facts and no bias

normative analysis

when research is presented with "what ought to be"

fallacy of composition

assuming what is good for one is good for all

association as causation

assuming that because two events seem to occur together, one causes the other

ceteris paribus

all other things held constant

capitalistic market economy

supply and demand decide what is produced and you get to keep the money

3 questions of economic systems

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

thinking on the margin

MB=MC (marginal benefits = marginal costs) "what lies ahead"

opportunity cost

the cost of making one decision; what is lost/given up; highest alternative

sunk cost

a cost that has already been committed and cannot be recovered

accounting profit

total revenues - total expenses

economic profit

total revenues - total expenses - opportunity cost

implicit cost

costs that you do not really pay

explicit costs

costs that you really pay "out of pocket costs"