1.0 Scarcity

What is Economics?

• Economics is the science of scarcity

  Textbook definition: social science is concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants

• Scarcity- unlimited wants but limited resources

💡 Ex: you must choose between buying jeans or buying shoes

microeconomics v. macroeconomics

• Microeconomics is the study of small economic units as individuals, firms, and markets, and the study of a large economy while economic aggregates

• Macroeconomics study of a large economy as a whole or economic aggregates

• Economists use the scientific method to make generalized abstractions to develop theories. This is called theoretical economics.

• These theories are then applied to fix problems or meet economic goals. This is called policy economics.

Positive vs. normative

positive statements- based on facts. Avoids value judgments (what is)

normative statements- includes value judgments (what ought to be)

5 key economic assumptions

1. society has unlimited wants and limited resources (scarcity)

2. due to scarcity, choices must be made. Every choice has a cost (a trade-off)

3. Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own self-interest

4. Everyone makes decisions by comparing the marginal cost and the marginal benefits of every choice.

5. real-life situations can be explained and analyzed through simplified models and graphs

marginal analysis

marginal analysis- making decisions based on increments

💡 Ex: when you go to the mall, you consider the additional benefit and additional cost (your opportunity cost)

economic terminology

utility = satisfaction

marginal = additional

allocate = distribute

price vs cost

what’s the price? vs how much does that cost?

price= amount the buyer (or consumer) pays

cost = amount seller pays to produce a good

investment

investment = the money spent by businesses to improve their production

consumer goods- created for direct consumption

capital goods- created for indirect consumption

the 4 factors of production

All resources can be classified as one of the following four factors of production

1. land- all-natural resources that are used to produce goods and services

2. labor- any effort a person devotes to a task for which that person is paid

3. capital

   1. physical capital- any human-made resource that is used to create other goods and services

   2. human capital- any skills or knowledge gained by a worker through education and experience

4. entrepreneurship- ambitious leaders that combine the other factors of production to create goods and service

   1. entrepreneurs

      1. tale the initiative

      2. innovate

      3. act as the risk bearers

   2. profit = revenue - cost

Productivity

productivity = A measure of efficiency that shows the number of outputs per unit of input