unit 1: introduction to economics

scarcity

drives everything in economics- personal, business and collective choices

trade-offs

the act of giving up one benefit in order to gain another potentially greater benefit- giving up to get something better

opportunity cost

the next best thing we can give up by making a choice-the most desirable alternate choice

thinking at the margin

making decisions based on small changes in allocation of resources- decisions based on your specific situation

cost/benefit analysis

to make rational choices we weigh marginal costs vs marginal benefits

output

the measure of the total goods and services produced in an economy

resources

any factors of production used to create output - capital, entreprenuerial ability, land or labor

productivity

a way to measure how good an economy is at productivity- measured as output per unit of input

incentive

something that creates a positive motivation to achieve a goal or agreed outcome

libertarianism

the market decides based on individual choice what should be produced

free market democracy

whatever the market decides based on the profit motive with some government regulation

social democracy

whatever is required to meet the needs and wants of society but with good regulation

socialism

what the workers and people decide is beneficial for all of society

communism

what the worker-run states decides should be produced to benefit the progress of the revolution

factors of production (CELL)

capital, entreprenuerialism, land, labor

economic growth

where we can produce more of everything

way to measure health and vitality of a nation

factor markets

where firms (businesses) use the four factors of production and turn them into goods and services

product markets

where firms sell finished products to households with the goal of turning a profit

negative externality

when another person experiences a cost due to a market decision by a producer or buyer

positive externality

when another person experiences a benefit from the market at no direct cost to them

public goods

goods or services provided to all of society, usually by a government throughout taxation

production possibility curve PPC

a fundamental graph in introductory economics

it shows the range of possible outcomes in an economy

the 3 ppc assumptions

an economy only makes two products

fixed resources and technology

the economy must optimize by using all its available resources

economic freedom

consumer choice: buy what you want

producer choice: sell what you want

voluntary exchange

ability to trade and willingness to sell

buyers and sellers each get what they want

competition

the number of sellers and buyers should be in balance

profit motive

encourages people to improve their own well-being

increases productivity

private property

everything you have is yours to control

gives incentives to maintain and invest in since it only benefits you

microeconomics

deals with human behavior and choices as they relate to relatively small units- and individual or single business firm

macroeconomics

deals with human behavior as it relates to the entire economy

needs

essential goods and services required for human survival and basic well-being, such as food, water, shelter, and clothing

wants

the unlimited desires, wishes, or cravings for goods and services that provide utility but are not essential for survival

economics

the study of making choices about how to use limited resources (like money, time, and goods) to satisfy unlimited wants, focusing on how people, businesses, and governments produce, distribute, and consume things, and how these decisions affect society as a whole

goods

any physical, tangible item or product that satisfies human wants, needs, or desires, and provides utility (usefulness) to consumer

service

an intangible economic activity or act provided by one party to another, creating value through time, skill, or expertise rather than by producing a physical, ownable object

consumer

an individual, household, or entity that purchases and uses goods, services, or resources primarily for direct personal consumption, rather than for resale or further production

producer

an individual, business, or entity that creates, grows, or supplies goods and services to satisfy consumer needs and wants

human capital

the intangible economic value of a worker's skills, knowledge, experience, health, and education, which directly influence productivity and economic growth

underproduction

occurs when the quantity of a good or service produced is lower than the socially optimal level, leading to shortages, higher prices, and economic inefficiency (deadweight loss)

karl marx

was a philosopher and economist who defined capitalism as an inherently unstable system based on the exploitation of the working class (proletariat) by the owning class (bourgeoisie).

adam smith

was a Scottish philosopher and pioneer of political economy, widely regarded as the "father of modern economics". He defined economics as an inquiry into the nature and causes of the wealth of nations, focusing on production, distribution, and consumption of goods, driven by self-interest and the "invisible hand" of free markets

market failure

an economic situation where the free market fails to allocate resources efficiently, leading to a net social welfare loss. It occurs when individual, rational decisions result in sub-optimal outcomes for society, often due to externalities, public goods, market power (monopolies), or information asymmetry. 

public good

a product or service that is both non-excludable and non-rivalrous, meaning it is available to all, and one person’s consumption does not reduce its availability to others

private good

a product or service that is both excludable and rivalrous. These goods are defined by limited ownership, where access is restricted to those who pay (excludable) and consumption by one person prevents simultaneous use by another (rivalrous)

circular flow

a diagrammatic representation showing the continuous, cyclical movement of money, resources, and goods/services between households and firms. It illustrates how households provide labor to businesses, receiving income in return, which they spend on goods and services, creating a continuous loop of economic activity.