Intro to Economic

Economics

The study of how society chosen to use scare resources to satisfy its unlimited wants and needs

Economist

Someone who studies economic theory and applies it to the real world

Microeconomics

The study of a single factor of an economy such as individuals, households, businesses and industries rather than the economy as a whole

Macroeconomic

The study of an entire economy or one of its principal sectors

Basic needs of all societies

1) government because a threat to peace and safety to live in a state of nature

2) government important to protect natural rights of life liberty and property

3) economic system necessary to assure basic needs met in a state of limited resources and unlimited wants

4) economic systems devised to address economic issue of scarcity

Scarcity

The combination of limited economic resources and unlimited wants

Three basic questions driven by scarcity

What to produce, how to produce, from whom to produce

Traditional economy

Production based on custom and tradition

Command economy

Central government authority makes all basic economic decisions

Market economy

Government has little say in what how and from whom good are produced

Mixed economies

Not “pure” traditional, command, or market but combines elements of them

1) authoritarian socialism

2) capitalism

3) democratic socialism

Authoritarian socialism

Government owns, controls nearly all factors of production

Capitalism

Individuals own, control factors of production- some government regulation

Democracy socialism

Government owns some of the factors of production but limited to key industries such as electrical utilities, telephone networks, industries of national concern

Goods and services are produced from productive resources

These resources are land, labor, capital, and entrepreneurship

Opportunity cost

The foregone benefit of the next best alternative when resources are used for one thing rather than another

Production possibilities curve

Can be used to illustrate graphically scarcity, choices and opportunity cost

Law of comparative advantage

Shows how everyone gains through trade

Real cost

The total cost of all resources used to produce a good or service including opportunity cost