Unit 1: Basic Economic Concepts

(1.1) Scarcity

scarcity: products that are finite (have an end)
- problem of economics: products are scarce but wants are unlimited → make choices and consider costs
4 economic resources
1. land: resources found in nature
  - payment = rent
2. labor: all human effort
  - payment = wages
3. capital: machinery/tools made by humans to gain resources
  - payment for use = interest
4. entrepreneurship: innovation + ideas
  - payment: profit
- NOT economic recources = consumer goods, waste, money/stocks (are used to facilitate production)

fundamental economic problem
1. What will be produced?
2. How will goods/services be produced?
3. Who will get goods/services?
command economy: government makes decisions for who owns/produces
market economy: private individuals makes decisions for who owns/produces
- creates competition between private individuals
traditional economy: cultural customs shape the economy
- EX: indigenous communities using bartering and religious/cultural importance to certain goods
mixed economy: mix of command + market economy (private ownership with regulation)
- most common economy in the world
households: consumers
firms: producers
allocation systems:
- “first come, first serve”
- random (lottery)
- competition
- command (based on need)
- price (whoever can pay gets the good/service)

opportunity cost: how much X product is given up to produce Y product
- equation = cost/gains
productions possibilities curve (PPC): conveys what society/factories are capable of producing with given resources
- constant PPC: the production level stays the same → constant opp costs
- increasing PPC: different resources → bowed out graph
  - the more technology → PPC bows out more to the right
  - most realistic PPC graph