Basics of Economics

Scarcity

Fundamental economic problem, forces us to make choices, UNLIMITED WANTED - LIMITED RESOURCES - CHOICES

Economics

Study of choices that an individual, business, country has to make in dealing with the problem of scarcity

Factors of production

Land, labor, capital, entrepreneurship

Land

Gift of nature, not created by human effort, natural resources, gas, oil, minerals

Labor

Human work

Capital

Goods used to produce other goods

Entrepreneurship

Person who creatively combines other factors of production, takes risk to make profit

Income earned from land

Rent

Income earned from labor

Wages

Income earned from capital

Interest

Income earned from entrepreneur

Profit

National Income

Rent + wages + interest + profit

Opportunity cost

Next best alternative use of a resource, what you give up or what you did not choose

Trade off

Alternative choice we give up when we make a decision

Possibility production curve

Model of opportunity cost (how many cakes, cupcakes can make) curve showing 100% efficiency, resources fixed, technology is constant, produce only two goods

How to get above PPC

New tech, additional resources, international trade

Below PPC

Underutilization of resources (waste)

Two sectors of economic activity

Households and businesses

Two markets of economic activity

Product and resource (or factor)

Factors of production are owned by

Households

Households provide businesses with

Factors of production (land, labor, capital, entrepreneurship)

Businesses provide households with

National income - rent, wages interest, profit

Government

Provides goods and services to both sectors (households and businesses) but also taxes them BOTH

Gross Domestic Product

Dollar value of all goods and services produced in the US in one year