Unit 1 Notes - Topic 1 (Basic Concepts of Economics)
1. Scarcity - The state of being scare or in short supply. Scarcity is a fundamental problem that all societies face
2. Economics - The branch of knowledge concerned with the production, consumption and transfer of wealth
3. 1st Pillar of Economic Wisdom - "There ain't no such thing as a free lunch"
4. Five Key Economic Assumptions
A. Society's wants are unlimited, but ALL resources are limited due to scarcity.
B. Due to scarcity, choices must be made. Every choice has a cost. (Trade-Off)
C. Everyone's goal is to make choices that maximize their satisfaction. Everyone acts in their own "self-interest".
D. Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice.
E. Real-life situations can be explained and analyzed through simplified models and graphs
5. Marginal -
7. Opportunity Cost - The loss of potential gain from other alternatives when one alternative is chosen
8. Macroeconomics - The part of economics concerned with large scale or general economic factors, such as interest rates and national productivity
9. Utility - A term used by economists to describe the measurement of "useful-ness" that a consumer obtains from any good
10. Allocate - The process by which economic resources get allotted (apportioned, assigned) to their particular yes for indirectly satisfying human wants
11. Price - The amount of money that has to be paid to acquire a given product
B. Cost - The combination of gains and losses of any goods that have a value attached to them by any one individual
12. Investment - An asset or item that is purchased with the hope that it will generate income or will appreciate in the future
B. Goods - Materials that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product
13. Consumer Goods - Any commodity which is produced and subsequently consumed by the consumer to satisfy his current wants or needs
B. Capital Goods - Tangible assets such as buildings, machinery, equipment, vehicles and tools that an organization uses to produce goods or services in order to produce consumer goods and goods for businesses (Items used in creation of goods)
14. Services - A type of economic activity that is intangible and does not result in ownership (Work performed for someone else)
15. Explicit Costs - A direct payment made to others in the course of running a business, such as wage, rent and materials
B. Implicit Costs - The opportunity cost equal to what a firm must give up in order to use a factor of production for which it already owns and thus does not pay rent
- Positive vs. Normative Economics
2. Economics - The branch of knowledge concerned with the production, consumption and transfer of wealth
3. 1st Pillar of Economic Wisdom - "There ain't no such thing as a free lunch"
4. Five Key Economic Assumptions
A. Society's wants are unlimited, but ALL resources are limited due to scarcity.
B. Due to scarcity, choices must be made. Every choice has a cost. (Trade-Off)
C. Everyone's goal is to make choices that maximize their satisfaction. Everyone acts in their own "self-interest".
D. Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice.
E. Real-life situations can be explained and analyzed through simplified models and graphs
5. Marginal -
- Marginal Cost - The change in the opportunity cost that arises when the quantity produced is incremented by one unit, that is, it is the cost of producing one more unit of a good
- Marginal Benefit - The additional satisfaction or utility that a person receives from counseling an additional unit of a good or service
7. Opportunity Cost - The loss of potential gain from other alternatives when one alternative is chosen
8. Macroeconomics - The part of economics concerned with large scale or general economic factors, such as interest rates and national productivity
9. Utility - A term used by economists to describe the measurement of "useful-ness" that a consumer obtains from any good
10. Allocate - The process by which economic resources get allotted (apportioned, assigned) to their particular yes for indirectly satisfying human wants
11. Price - The amount of money that has to be paid to acquire a given product
B. Cost - The combination of gains and losses of any goods that have a value attached to them by any one individual
12. Investment - An asset or item that is purchased with the hope that it will generate income or will appreciate in the future
B. Goods - Materials that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product
13. Consumer Goods - Any commodity which is produced and subsequently consumed by the consumer to satisfy his current wants or needs
B. Capital Goods - Tangible assets such as buildings, machinery, equipment, vehicles and tools that an organization uses to produce goods or services in order to produce consumer goods and goods for businesses (Items used in creation of goods)
14. Services - A type of economic activity that is intangible and does not result in ownership (Work performed for someone else)
15. Explicit Costs - A direct payment made to others in the course of running a business, such as wage, rent and materials
B. Implicit Costs - The opportunity cost equal to what a firm must give up in order to use a factor of production for which it already owns and thus does not pay rent
- Positive vs. Normative Economics
- Positive - Claims that attempt to describe the world as is. (Very Descriptive) Ex. - Minimum wage laws causes unemployment (Fact)
- Normative - Claims that attempt to describe how the world should be. Ex. - Government should raise minimum wage (Opinion)
- Wants - Desires of the citizens
- Needs - Basic requirements for survival
- Quantity demanded is greater than quantity supplied
- 4 Factors of Production
- Land - Natural Resources
- Capital
- Human - Knowledge and skills a worker gains through education and experience
- Physical - Human made objects used to create other goods and services
- Labor - Work Exerted
- Entrepreneurship - Risk take and innovative
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