Resources
Land (Natural Resources)
supply thought to be fixed
Labor (Human Resources)
People with all their effort, abilities, and skills
Excludes entrepreneurs
supply is not fixed
Quality and Quantity affected by war, famine, disease, immigration, emigration, pop growth
Capital
human made good to produce goods or services
goods to make goods
physical capital includes tools, machines, equipment
capital stock is the total sum of physical capital
human capital includes the knowledge and skills needed to preform labor. Gained by education, experience, and training
financial capital - invested / investible money
Entrepreneurship
Innovators responsible for bringing land, labor, capital to meet unmet / unimagined needs and wants
thought of as the driving force of the economy
Scarcity
economic problem caused by limited resources + unlimited needs and wants
not all of societies goal can be pursed at the same time leading to trade offs (exchanging one great thing for another)
Types of goods
goods - tangible useful product, transferable to others, satisfies needs and wants
durable good - lasts for at least 3 years with regular use
disposable good - used up after a short time after purchase, “nondurable good”
consumable good - a good that reduces when used, ex food, soap, toothpaste
consumer good - a good intended for final use be used by consumers rather then business
free goods - goods so abundant they aren’t scarce ex air, sea water
economic / scarce goods - everything but air and sea water
capital good - human made good to produce goods or services
Utility - usefulness or satisfaction derived from a good or service
wealth - sum of tangible, scarce, and useful economic goods that are transferable from one person to another
Value - monetary worth of a good or service as determined by the market (price agreed to by sellers and buyers)
paradox of value - contradiction between the high value of nonessential item and low value of essential item
opportunity cost - next best alternative, trade off, almost never expressed in $,
most accurate and complete concept of cost
inclues explicit costs (direct payments) and implicit costs (no payment made ex time)
cost benefit analysis - comparing marginal costs (additional cost of one unit) with marginal benefits (benefit of adding the unit) to make a decision about what trade offs to make
more something is produced greater the marginal opportunity cost becomes
marginal cost = cost of producing one or more unit of a good
Production Possibilities Curve (PPC) - graph showing 2 alternate ways to use an economy’s productive resources
point ON CURVE - resources are fully employed and used efficiently to maximize goods / services
point INSIDE CURVE - resources are under-employed, being used inefficiently
recessionary Gap - distance between PPC and the point inside
point OUTSIDE CURVE - resources are over employed, being used super efficiently and can only be sustained for short period of time
production possibilities frontier (PPF) - line / curve on PPC that shows trade offs between 2 alternative ways to use economic productive resources
straight line ppf = constant opportunity cost
concave = increasing opportunity cost
convex = decreasing opportunity cost
horizontal or vertical line = 0 opportunity cost
PPC variables - quantity and quality, tech, international trade
3 Basic Economic ?s
What to produce? cant have everything, must make decisions
How to produce? more labor intensive or capital intensive production, determines efficiency
For who to produce? how are resources distributed
social goals
economic freedom - individuals making own decisions following own desires
economic equity - “fairness” in the marketplace
economic growth - long-term increase in quantity available to individuals
economic security - protection against risk like inflation, poverty, unemployment
economic efficiency - least costly methods, most productive resources
economic quality -concern for environment and natural resources
3 types of economies
Traditional Economies - based on ritual, habits, and customs
decisions not made freely, made based on customs of elders / ancestors
what to produce? job may be primarily based on ancestors / parents
how to produce? same way done in previous generations
for who? depends
disadvantages - discourages new ideas, strict rules punish ppl who act diff, leads to little progress, standard of living decreases relative to other societies
Centrally Planned Economies aka command economy
gov deiceds who what how
disadvantages - lacks flexibility and no signals when economy changes conditions, unfree individual rights sacrificed for greater good
those willing to wait in que will get goods and services
Communism - single-party gov, near complete control of political / economic activities, gov owns all resources and production, private property is immoral
Socialism - democratic control of gov / political institution, multiple parties seek elections, more economic freedom then communism less then capitalist
Market Economy - those willing to pay the price will get goods and services