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economics
study of how people use their limited resources to fulfill our unlimited wants and needs
a social science essential for managing scarce resources
economists
they study the choices we make and also the consequences of these choices
malthus theory
revolves around the idea that population tends to grow faster than the ability of a society to provide enough resources to sustain said population
circular flow
helps us understand how different components of the economy are interconnected in a continuous flow of economic activity
positive economic analysis
describes what exist and how things work
ex: taxes provide government service to the people
normative economic analysis
looks at the outcome of economic behavior through judgments and perceptions of courses of action
ex: the government should raise the minimum wage
microeconomics
examines how individual consumers make choices, how businesses decide on prices and production levels, and how markets function at a smaller, more detailed level
macroeconomics
deals with issues on a national or global scale
studies the aggregate behavior of the entire economy
economic resources
sometimes called factors of production
used in the production of goods (tangible) and services (intangible)
limited resources
there are not enough resources to produce all the goods and services that consumers want
land
natural resource
refers to everything on earth that is in its natural state
free gifts of nature
labor
human resource
refers to all the people who work in the economy
any human effort (manual or mental)
capital
man-made resource
includes money needed to start and operate a business
used to produce goods or services
enterprise
intellectual resource
refers to the skills of people who are willing to risk their time and money to run a business
unlimited wants
individuals, businesses, and governments always want more; their wants are insatiable
asset
resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit
liability
something a person or company owes, usually a sum of money
settled over time through the transfer of economic benefits
consumer needs
those things necessary to human survival; things we cannot live without
consumer wants
goods or services desired by the consumer; ‘pag nagiging excessive na
investment
when capital good are bought and helps businesses make more or better products in the long run
alpha minds
another term for talented entrepreneurs
industrial capital
used by firms (ex: factories, offices, plant and machinery, tools, etc.)
social capital
belongs to the whole community (ex: schools, hospitals, roads)
private capital
belongs to individuals (ex: houses)
financial capital
money waiting to be used to buy capital goods
renewable resources
quickly replenished by natural processes
non-renewable resources
not replaced naturally
scarcity
the difference between wants and needs and available resources
economic resources are limited compared to wants which are unlimited
a universal problem; always exists and cannot be eliminated, only reduced
rational choices
uses the available resources to most effectively satisfy the wants of the person making the choice
making a decision that does not make you worse off → the highest-valued alternative forgone
choice
because of scarcity, we cannot fulfill all our wants and must choose from the available alternatives
necessary because resources can be used in lots of ways to make different goods and services
individuals [choice]
must choose what to buy out of their limited incomes
consumers decide how to spend their income in a way which gives them the greatest level of satisfaction
producers [choice]
must choose what to produce with their limited resources
motivated by the desire to maximize profit
governments [choices]
must choose what services to provide out of their limited tax revenues
spending tax revenue in a way that they think will maximize society welfare
opportunity cost
it is a direct result of scarcity and occurs every time a choice is made
every choices involves a sacrifice or trade-off
cost of giving up an alternative by selecting the next best choice
trade-off
often expressed as opportunity cost
a sacrifice that must be made to obtain a desired product or experience
helps ensure that you are using your resources wisely
marginal benefit
benefit that a person receives from consuming one more unity of a good or service
marginal cost
opportunity cost of producing one more unit of a good or service
individual [opp. cost]
choosing a product is the next item on their scale of preference
firm [opp. cost]
producing a good is the next most profitable product which could have been produced with the resources used
government [opp. cost]
providing a service is the next best service which it could have provided with the resources used
econometrics
the application of statistical and mathematical theories to economics for the purpose of testing hypotheses and forecasting future trends
adam smith
father of economics
economic systems
characterized by the type of institutions responsible for the management and allocation of resources used in the production of goods and services
what to produce? → choosing the mix of goods and services
how to produce? → who will do the production and which method will be used
for whom to produce? → who will consume the goods and service
invisible hand
means what is produced, what quantity, and to what price
planned economic system (command)
all decisions about resource allocation are made by the government or government-owned
based on the principle of equity
used to exist in communist countries of eastern europe
free economic system (market)
no government involvement in economic decisions (similar to laissez-faire)
private enterprise
resources are owned by private individuals
competition
exists between producers and between consumers
consumer sovereignty
consumers are the king and rule the market
price mechanism
price acts as a signal to producers. consumers buy particular goods and are, in effect, casting a vote.
traditional economic system
economy is shaped largely by custom or religion; they determine the who, what, and how
privatization
a common aspect of transition from a command economy to free enterprise system; means state-owned industries are sold to private individuals and companies
mixed economic system
there is a private sector (households) and a public sector (government)
most economies in the world practice this economic system
capitalism
trade and industry are controlled by private owners for profit, rather than the government
socialism
economic and political system based on the means of production
production possibilities frontier
it is the point at which the economy is most efficiently producing its good and services in a given time period, and therefore allocating its resources in the best way possible
ceteris paribus
all things being equal or held constant
isang variable lang ang cinoconsider; everything is constant except for one variable
inside the curve
inefficient combinations; not all resources are fully utilized or used in the best possible way
on the curve
efficient output combinations
outside the curbe
an output combination that is not yet attainable
economic growth
the ability of an economy to produce greater levels of output, represented by an outward shift of its production possibilities curve
comparative advantage
ability of a person to perform an activity or produce a good or service at a lower opportunity cost than someone else
a foundational principle in the theory of international trade
looks at who’s better at doing something in relation to another activity
absolute advantage
when one person is more productive than another person in several or even all activities
looks at who's better at doing something overall
post hoc ergo propter hoc
a logical fallacy that assumes that because one event happened after another, the first event must have caused the second
fallacy of composition
states that what is true for a component is also true for the entire being
sweeping generalization fallacy
committed when a statement wraps up everything with no exemptions to the rule, as if making it a general statute
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