Principles of Economics - D089

Pick up at the start of Unit 2, Module 1, Lesson 3: The Economic Way of Thinking.

Economics

The study of how humans make decisions in the face of scarcity

Factors of production

Describes the inputs used in the production of goods or services to make an economic profit

Macroeconomics

A branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole

Microeconomics

A branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individual firms

Scarcity

The basic economic problem; the gap between limited, scarce, resources and theoretically limitless wants

Opportunity cost

The next best alternative that is given up when a choice is made (principle 2)

Think at the margin

Thinking about what the next step or an additional action means for a person

Marginal benefit

The incremental increase in the benefit to a consumer caused by the consumption of one additional unit of a good or service

Marginal cost

The additional cost incurred from consuming an additional unit of something

Economic systems

A system of the production, resource allocation, and distribution of goods and services within a society or given geographic area

Traditional economy

This system is based on culture and rituals handed down through generations. It is usually present in small, remote communities where members contribute equally towards one goal (e.g., Innuit and other indigenous populations).

Command economy (centralized)

The government makes all decisions regarding the production and distribution of goods, services, and human resources. Economic access is very limited for the general population (e.g., North Korea).

Market economy

Consumer choices drive the economy, and government involvement is limited. Production, distribution, and the prices of goods and services are allocated through consumer demand. There are no true market economies.

Mixed economy

Market concepts are prevalent, but elements of other economies are also present, such as government regulations to ensure safety and fairness. Most countries conform to a mixed economy.