1A - Intro to Basic Economic Concepts

Productivity

• The ratio of outputs and inputs

• Shows how efficient companies are with their resources

Scarcity

• The relationship between supply and demand

• When there’s more demand than supply a resource becomes hard to obtain

Opportunity Cost (OC)

• What you could’ve done with the money you spent

Factors of Production

• Land: All of the NATURAL resources used to produce (not man-made)

• Labor: All of the workers and their skills

• Capital: All of the tools, equipment, and factories

• Entrepreneur: The risk taker, creates the businesses with the factors of production

Paradox of Value

• When an economic need has less societal value than an economic want

Demand

• How much a person is willing and able to purchase a good or service

Supply

• How much a person is willing and able to produce a good or service

Production Possibilities Curve

• Shows all of the possibilities of producing 2 goods and/or services

1. Inefficient, resources aren’t being used to the max

2. Impossible, the resources are too scarce to produce that much

3. Efficient, on the curve

4. Efficient, on the curve

5. 3 → 4. Opportunity cost

Economic Growth

• Able to produce more things

• Increases the standard of living

• Can be increased by…

  • More resources

  • Better technologies

  • More productivity

  • Population growth

Circular Flow of Economic Activity

• Individuals: Buy products from the product market, and sell their labor and skills in the factor market

• Product Market: Buys products from businesses, and sells products to individuals

• Business: Sells products to factor markets, and pay for resources from factor markets

• Factor Market: Sells resources to businesses, and earns money from resources

Product Market

• Sells goods and services to people

Factor Market

• Sells people’s labor and skills to make products

TINSTAAFL

• There is no such thing as a free lunch

• There are always invisible costs if one isn’t seen

• Someone has to pay for it and provides it for others

• Always opportunity cost