foundation of economics?

verbatim

scarcity

the situation where limited resources are unable to fufil unlimited human wants and needs

factors of production

CELL (Capital, Entrepreneurship, Land, Labour)

opportunity cost

The value of the next best alternative forgone when a decision is made

free good

A good which are not scarce and thus requires no opportunity cost to produce ( ie sunlight)

economic good

are scare, requires resources to produce, have opportunity cost

Three basic economic questions

what to produce (and how much)?

whom to produce for?

how to produce?

free market economy

Economy where means of production are privately owned and market forces determining the answers to the three basic economic questions

planned economy

Economy where everything is “planned” by the government, government determines the answer to the three basic economic questions

mixed economy

An economy that has elements of a planned economy and elements of a free market economy. In reality, all economies are mixed. What is different is the degree of the mix from

country to country.

PPC model (assumptions + graph)

Assumes:

• technology is constant

• all resources are fully employed and used efficiently

Capital Good/ Consumer good

all possible combinations of the maximum number of two goods/services that can be produced within an economy, given that technology and resources are fixed, when all resources are fully employed and efficiently used

PPC in relation to scarcity, choice and opportunity cost

Scarcity: cannot produced outside the PPC

Choice: economy can only choose one combination of goods to produce at

Opportunity cost: increasing production of one good with result in the decrease in production of another good

actual growth vs growth in production possibilities (PPC) (and causes)

actual growth: movement of a point in PPC closer to the PPC curve, caused by reduced unemployment and more efficient use of resources

Growth in production possibilities: outward shift of PPC curve outwards. caused by improved quantity and quality of FOP, improved technology

circular flow of income model (+leakages and injections)

Leakages: savings, taxes, imports

Injections: investment, exports, government spending

positive vs normative statements

positive: based on fact, uses stats and hypothesis

Normative: based on opinion, personal beliefs