Introduction to Economics

Economics is the study of…

how scarce resources are allocated to meet society’s needs and wants.

Land

All raw materials that are used in the production of economic goods.

Labour

The work done by humans that is used in the production of economic goods.

Capital

All that is made by humans and is used to produce other goods and services; occurs as a result of investment.

Enterprise/Entrepreneurship

The organizing and risk-taking that must take for the production of goods and services to occur.

Productivity

The effectiveness of productive effort; rate of output per unit of input.

Scarcity

The limited availability of economic resources relative to society’s unlimited needs and wants of goods and services.

Opportunity Cost

The value of the next best alternative forgone when an economic decision is made.

Free Goods

The few things that are not limited in supply and therefore do not have an opportunity cost.

Production Possibilities Curve (PPC)

A graph illustrating the maximum combinations and possible output for two goods or services, if resources are used in a technically efficient way.

Efficiency

All goods and factors of production in an economy are distributed or allocated to their most valuable uses, maximizing output given finite resources.

Law of Increasing Opportunity Cost

Opportunity cost increases because of specialization of FOP. As resources are allocated, there is a cost of using them for one purpose over another since they are not equally suited.

Specialization

Allows a company or individual to focus on a specific type of production, therefore increasing productivity. Makes resources not equally suitable for the production of different goods and services.

Positive statements

Fact-based and can be supported/disputed using data.

Normative statements

Opinion-based and require value judgements.

Circular Flow of Income

A diagram demonstrating how money moves through society. It shows the exchange of money, labor, and resources between households and businesses in an economy, as well as leakages and injections.

Leakages (SMT)

income that escapes an economy; sum of (S)avings, i(M)ports and (T)axes.

Injections (GIX)

introduction of income into the economy; sum of (G)overnment spending, (I)nvestments and e(X)ports.

Reward for LAND

= RENT

Reward for LABOUR

= SALARY/WAGE

Reward for CAPITAL

= INTEREST

Reward for ENTERPRISE

= PROFIT

Trade

The voluntary exchange of goods/services.

Utility

The satisfaction an individual derives from consuming a good/service.

Marginal Utility

The satisfaction derived from consuming one additional good/service.