CHAPTER 1: The Basics of Economics

Economics

A social science that studies scarcity of resources and the unlimited needs and wants of people

Economic Goods

All goods and services needed by mankind that has to be paid for

Choice

This is what is being studied in Economics, the individual's and society's ability to make [blank]

Opportunity Cost

Measures the things that must be given up when one chooses the alternative over the other

Scarcity

Limits people's options as everything needs to be paid for

Scarce

Limited resources for unlimited needs and wants

Privatization

This causes lack of resources due to most resources being privately owned, unable for people to access it

Prices

Goods and services because of scarcity

Ownership

Resources having this results to the existence of rich and poor in the society

Indicator of scarcity

Man needs to work in order to make a living or maintain a living standard

Natural Resources

Raw materials supplied by nature; gifts from God which need to be conserved for a good life

Microeconomics and Macroeconomics

Major Branches of Economics

Microeconomics

The study of the behavior of individuals/consumers, firm or industry

Macroeconomics

The study of the aggregate economy or the economy as a whole

Study of Macroeconomics

Studies the GNP, employment level, the general price level, exchange rates, and more

Factors of Production

Resources that are used to produce other goods and services

Factor Payments

The payment of the factors of production as resources are scare therefore demands payment

Land

All natural resources used to produce goods and services, such as mineral deposits, water resources, wild animals, and trees

Rent

Payment for the use of land

Labor

Physical and mental exertions of a person to produce goods and services

Wage

Payment for the use of labor

Capital

Man-made or manufactured resources used to produce goods

Capital (Structures)

Used in process of production such as buildings, equipment, machineries, raw materials, and land improvements

Interest

Payment for the use of capital

Entrepreneur

A person who combines land, labor and capital to produce goods and services

Entrepreneur

The manager, supervisor, and innovator. He determines the best person for the job and pays them

Normal Profit

Payment for the services of the entrepreneur

Production Possibilities Curve (PPC)

A curve which depicts the trade-off between two commodities. Points found on PPC shows the combination of two goods that can be produced by the full utilization of available resources

Two Goods

An assumption where the economy produces only two commodities

Fixed Resources

An assumption where the quantity and quality of the factors of production are fixed

Fixed Technology

An assumption where the state of technology is constant

Full Employment

An assumption where the economy is employing all of its available resources

Profit

This is what all products are made for

Income

Determines your capacity to consume

Money

Determines most of our choices

Scarcity of Resources

The fundamental economic problem

Consumption

This is a decision as to the type and kind of goods and services society desires or needs

Production

The technique of making and the manner of combining resources to come up with the desired output

Distribution

The allocation of goods and services among the members of the society