Economics Unit 1

Scarcity

when there isn’t enough resources to produce all things people want and need

Economics

study of choices people make in a world of scare resources

wants

something you’d like to have, but not needed to survive

goods

useful, tangible item

durable good: lasts 3+ years

nondurable good: lasts less than 3 years

consumer good: good which final use is by customer

capital good good used by a business to make other goods

services

intangible work performed for someone

value

worth someone places on a product/willing to pay for something

utility

amount of satisfaction one gets from something

for something to have value, it has to have utility

price

amount of $ required in payement for something

reflects scarcity and utility

paradox of value

contradiction of prices of needs vs wants

marginal utility

goods price is determined by satisfaction from next unit consumed, not total usefulness

factors of production

land- natural resources/raw materials

labor- workers and efforts

capital- tools, equipment used to make products

entrepreneurship- risk takers who seek profit

3 basic econ questions

what to produce?

how to produce?

for whom will this go to

economic systems

organized way of providing for wants/needs of society

how society decides to answer 3 basic questions

Traditional economy

using scarce resources stem from trandition

advantages: little unertainty, doing same as always done, everyone knows their role, more stable communities, less env. damage

disadvantages: limited freedom, innovation, stagnant economy, impacted by nature

command economy

central authority answers all basic questions

advantages: change economy drastically, health services provided @ little cost, try for wants/needs to be satisfied

disadvantages: limits individual property rights, ignores basic want/needs, lacks flexibility

market economy

ppl and businesses make decisions in own best interest

ppl spending money on stuff tells govt what to produce

advantages: businesses and individs have freedom, no govt. interference, change gradually overtime, variety of goods and services

disadvantages: doesn’t provide for all (no safety net), doesn’t always provide basic wants/needs, high degree of uncertainty

mixed economy

any system incorperating two or more economic systmes

advantages: little but of govt. invovlement, democracy: allows voters to influence answers to 3BQs

disadvantages: taxes/prices often higher, if theres economic downturn then govt could cut safety net

6 economic goals

efficancy: make most of resources

equity: just and fair distrubution of societys wealth

freedom: businesses and individs able to make choices w/ little govt intervention

growth: more products

security: provide for less fortunate

stability: consistency in day to day experience

free market

resources are privately owned and competition is fluorishing w/o govt. interference

capitalism

means of production are provately owned and operated for profit

invisible hand

supply and demand are self regulating forces in a market

competition and self interest act as an invisible hand that regulates the free market

TINSTAAFL

cost to everything even if it doesnt seem like it

costs are almost always passed to consumer

5 pillars of free market

competition: struggle to attract consumers w/ best products and low price

economic freedom: businesses can make choices w’ minimal interference

private property: ppl can own and control their stuff as they wish

profit motive: improve ones material wellbeing

voluntary exchange: buyers and sellers engaging in market transactions

mixed capitalist economy

more industries and resources are left to outcome of free markets (citizens own means of pridction/profit)

mixed socialist economy

more industries and resources are own/controlled by govt

socialism

govt controls many large industries, answers 3BQs

indistries/resources not operated for profit

communism

classless society where ppl own and control means of production

privatiztion

industry that was in public sector moves to private sector (mixed capitalist)

nationalization

industry in private sector moves to public sector (mixed socialist economy)