Basic Economic Concepts

What is economics?

The study of how man allocates scarce resources to satisfy unlimited wants.

What is social science?

A field of study that examines human society and social relationships.

What are the (3) groups of the economy?

household, firm and government.

Who are households

The decision-making unit of the economy that consumes goods and services and owns factors of production.

What are factors of production?

land, labour, capital and entrepreneurship

Where are the factors of production found?

Within the household

Who are firms?

Decision-making units responsible for producing goods and services and buying factors of production from households.

Who are governments?

The entity that sets rules and laws for households and firms, sometimes involved in production.

What are needs?

Essential goods/services required for survival, e.g., basic clothing.

What are wants?

Desires for goods/services that enhance quality of life but are not essential, e.g., designer jeans.

What is scarcity?

A situation where unlimited wants exceed limited resources.

What is a choice?

The range of options available to households, firms, and governments when making decisions.

What is an opportunity cost?

The next best alternative forgone when a choice is made.

What is money cost?

The actual monetary expenditure made to produce a good or service, including costs of inputs.

What is Production Possibility Frontier (PPF)?

A graph that shows the various combinations of two goods that an economy can produce with fixed resources.

What is economic efficiency?

A condition where an economy is utilizing all its resources effectively, producing maximum combinations of goods.