Basic Economic Concepts (Unit 1)

Scarcity and Economics

• Economics is the science of scarcity, studying how individuals, firms, and governments make choices due to unlimited wants and limited resources.

Microeconomics vs. Macroeconomics

• Microeconomics studies small economic units (individuals, firms, markets).

• Macroeconomics studies the whole economy and aggregates (growth, unemployment, inflation).

Positive vs. Normative Economics

• Positive statements are fact-based ("what is").

• Normative statements are value judgments ("what ought to be").

Key Economic Assumptions & Marginal Analysis

• Scarcity necessitates choices, each with an opportunity cost (value of the best alternative forgone).

• Decisions involve comparing marginal (additional) benefits (MB) to marginal costs (MC); activities continue as long as MB > MC.

The Four Factors of Production

• Land: Natural resources.

• Labor: Human effort.

• Capital: Physical (tools, machinery) and Human (skills, knowledge).

• Entrepreneurship: Leaders combining resources and taking risks.

Economic Concepts

• Price: What a buyer pays.

• Cost: What a seller pays to produce.

• Investment: Money spent by businesses to improve production.

• Goods: Consumer (direct consumption) vs. Capital (indirect consumption).

• Utility: Satisfaction.

• Profit: Revenue − Costs.