Unit 1:Basic Concepts of Economics 1/3/17

Basic Concepts of Economics

1. Macroeconomics: study of the economy as a whole
    Microeconomics: study of individual or specific units of the economy, supply and demand

2. Positive economics:

• Claims that attempt to describe the world as is
• Descriptive in nature and fact-based

Normative economics:

• Claims that attempt to prescribe how the world should be
• Opinion-based

3. Needs: Basic requirements for survival

    Wants: Desires

4. Scarcity:

• Fundamental economic problem that all societies face
• How to satisfy unlimited wants with limited resources

   Shortage: Quantity demanded exceeds quantity supply 

5. Goods: Tangible commodities

• Capital Goods: Items used in the creation of other goods
• Consumer Goods: Intended for final use by the consumer

   Services: Work that is performed for someone. (ex: entertainment)

Factors of Production:

1. Land- Natural resources

2. Labor- Work exceeded

3. Capital

• Human Capital: when people acquire skills & knowledge through experience and education.
• Physical Capital: Money, tools, machinery

4. Entrepreneurship- Risk taking, take first three factors for promotion. 

Trade-offs: Alternative that we sacrifice when we make a decision

Opportunity Cost: Next best alternative

Guns or Butter: Refers to the trade-offs that a country faces when choosing whether to produce more or less of military goods or consumer goods.

Thinking about the Margins: deciding whether to add or subtract one additional unit of some resource.