Econ 12

The value of the next best alternative you give up when making a choice.

Opportunity Cost

Effective vs. Efficient

Effective: achieves the desired goal. Efficient: achieves the goal using the least resources/time.

The study of what is using facts, data, and cause-and-effect analysis

Positive / Analytical Economics

The study of what should be based on values, opinions, or desired outcomes

Normative / Policy Economics

what is Economics

Science of scarcity, social science, helps us understand news events and apply in real life, how we make decisions with the use of scarcity science

Assuming that what is true for one person/group must be true for everyone

Fallacy of Composition

Assuming that because B happened after A, A caused B.

Post Hoc Fallacy

Assuming an event has only one cause when it may have multiple causes.

Fallacy of Single Causation

TO GET A GREATER AMOUNT OF ONE PRODUCT U NEED TO SACRIFICE OTHER

.

Law of Increasing Relative Costs

Adding more of one input while others stay fixed eventually causes smaller increases in output.

Law of Diminishing Returns

Adding more inputs can cause output to increase by an even greater amount.

Law of Increasing Returns to scale

what is Traditional Productive Resources

Productive resources are the things we use to produce goods and services.

There are 4 main types:

🌲 Land

Natural resources used to make products.

Examples:

• Land

• Water

• Trees

• Oil

• Minerals

Example: A mining company uses land and minerals to produce metals.

👷 Labour

The physical and mental work people do to produce something.

Examples:

• A teacher teaching

• A doctor treating patients

• A construction worker building a house

💰 Capital

Things used to help produce other goods and services.

Examples:

• Machines

• Tools

• Factories

• Computers

⚠ Capital does NOT just mean money. In economics, capital usually means tools and equipment used for production.

There is also:

Human capital = people's knowledge, education, training, and skills.

what is Tangible vs. Intangible Resources

Tangible = you can physically touch it

Examples:

• Machines

• Buildings

• Tools

• Computers

Intangible = you cannot physically touch it

Examples:

• Knowledge

• Skills

• Experience

• Ideas

what is the Economic Systems

An economic system is the way a society decides how to use its limited resources.

Every economy has to answer 3 basic questions:

1. What to produce?

What goods and services should be made?

Example:

Should we produce more cars or more food?

2. How to produce?

How many should we make?

Example:

Should a company make 1,000 cars or 10,000 cars?

3. to whom

how much to produce?

what is Traditional Economy

A traditional economy is based on customs, traditions, and practices passed down through generations.

Your notes say:

Pre-modern

This means it is usually associated with societies before modern industrial economies.

Main idea:

People often do the same types of work their families have done for generations.

Example:

A child learns farming from their parents and eventually becomes a farmer.

Your note:

"Skills + jobs: one gen to next"

means skills and occupations are passed from one generation to the next.

Other characteristics:

• Simple production

• Often focused on basic needs

• Self-sufficient

• Uses local resources

• Usually has modest needs

Self-sufficient = producing most of what you need yourself rather than relying heavily on buying things from others.

use of barter (no use of money system, trading using skills , services or resources)

what is Command Economy/central planning

A command economy is an economy where the government makes most of the important economic decisions.

Think:

Government → controls the economy

The government decides things like:

• What to produce

• How much to produce

• How resources are distributed

• Sometimes prices and wages

Your note:

"economic decisions by small elite in govt"

means that a small group of government leaders makes many of the major economic decisions.

State-owned production

The government may own businesses and resources.

For example:

The government owns a factory and decides what that factory produces.

Food, housing, services

The government may control or provide important things such as:

• Food

• Housing

• Healthcare

• Transportation

• Other services

"Rewards loyal, punishes those not"

This means the government may give benefits or better opportunities to people who support the government, while people who don't follow its rules may be punished.

"Pay low / living standard low"

In some command economies, wages and consumer choices can be limited, which can lead to lower living standards, although this isn't true of every command economy.

what is Market Economy

A market economy is mainly based on buyers and sellers interacting in a free market.

Think:

Consumers + Businesses → make economic decisions

Instead of the government deciding everything, people and businesses make many decisions themselves.

Self-interest

Your note says:

"People act in own self interest"

This means people usually make choices that they believe will benefit themselves.

Example:

A person wants a good-paying job → they work and develop skills.

A business wants to make money → it produces something people want to buy.

Buyers + sellers

Buyers want to get products they want at good prices.

Sellers want to sell products and make a profit.

Their interaction helps determine:

• What gets produced

• How much gets produced

• Prices

Mixed economy

most countries are mixed, modified market economy,
private enterprise + public ownership
tax
social safety net (social welfare program, ex: health care, pension)

Communism

Main idea: Society should have economic equality and private ownership of major resources is eliminated.

• Karl Marx → major thinker behind communism.

• 1848: Communist Manifesto → Marx and Engels explained communist ideas.

• Class warfare → Marx believed history involved conflict between economic classes, especially workers vs. owners.

• Social equality → Communism aims to reduce/eliminate economic class differences.

• No private ownership of major companies/property → major industries are collectively/state owned.

• Revolution → Marx expected workers to eventually overthrow the capitalist system.

• Stateless society → Marx's eventual ideal was a society where the state would no longer be necessary.

Super short:

Communism = economic equality + collective ownership + end of social classes.

Socialism

Main idea: The economy should have more public/collective control and greater economic equality, while private ownership can still exist.

Your notes mention:

• Democratic → socialism can exist within a democratic political system.

• Anti-free enterprise → generally favors more government regulation/control than capitalism.

• Cooperation → emphasizes cooperation rather than competition.

• Government ownership of major companies → some important industries may be publicly owned.

Difference from communism:

Socialism: private businesses/property can still exist.

Communism: aims for much more extensive collective ownership and eventually a classless, stateless society.

Super short:

Socialism = more government/public control + economic equality, while some private ownership can remain.

Capitalism

Main idea: Individuals and businesses can privately own property and businesses and make economic decisions.

Your notes:

• Investment of capital → people invest money/resources into businesses to make a return.

• Private industry for profit → businesses can be privately owned and seek profit.

• Free market → prices and production are largely determined by supply and demand.

• Innovation → competition can encourage businesses to create new products and technology.

• Personal liberty → people generally have more freedom to choose what to buy, sell, produce, or invest in.

• Wealth inequality → people can end up with very different amounts of wealth.

Your note says capitalism "produced more wealth than any other system." For a test, I'd phrase that more carefully:

Capitalism has historically been associated with economic growth, investment, and innovation, but it can also produce significant wealth inequality.

Super short:

Capitalism = private ownership + free markets + profit + competition.

Facism

Main idea: An authoritarian, nationalist system where the state has extensive control over political and social life.

Your notes:

• One party → political opposition is restricted or eliminated.

• One leader → power is concentrated around a strong leader.

• Nationalism → the nation is emphasized above individual interests.

• Anti-liberal → rejects liberal democratic ideas such as strong individual political freedoms.

• Anti-democratic → opposition parties and democratic competition are restricted.

• Pro-military → military strength is highly valued.

• Anti-freedom → individual freedoms can be restricted by the state.

• Private industry tied closely to the state → businesses can remain privately owned, but the government directs or heavily influences them.

• Corporate state → the government organizes economic groups/industries under state direction.

Super short:

Fascism = one leader + one-party authoritarian rule + extreme nationalism + strong state control.

When achieving one economic goal makes it harder to achieve another goal. Example: Increasing taxes may help reduce government debt but can reduce people’s spending.

Conflicting Goals

Having a stable government and political system so people and businesses can make economic decisions with confidence.

Political Stability

Reducing the amount of money the government owes so less money is spent paying interest

Reduce Debt

Increasing the production of goods and services in an economy over time.

Economic Growth

Trying to make the distribution of income more equal among people.

Income Equality

Keeping prices relatively stable by avoiding high inflation or deflation.

Price Stability

as many people as possible who want to work employed, while recognizing that some unemployment will always exist.

Full Employment

Keeping a countrys money flowing in and out through trade and other international transactions relatively balanced.

Balance of Payments

Allowing people and businesses to make their own economic choices, such as what to buy, sell, or produce.

Economic Freedom

Using natural resources responsibly and protecting the environment for the future.

Environmental Stewardship

How much output is produced using a given amount of resources, such as workers, time, or machines.

Using resources in the best way possible to produce the most output with the least waste.

Productivity And Efficiency