Unit 1: Basic Economic Concepts 

Vocabulary:

1. Scarcity: The state of being scarce or short in supply; shortage (Fundamental problem that all societies face) 
2.  Economics:Branch of knowledge concerned with the production, consumption, and transfer of wealth 
3. 1st Pillar of Economic Wisdom: Nothing in our material world can come from no where, nor can it be free; everything in our economic life has a cource, a destination and a cost that must be paid.
4. First Five Key Economic Assumptions: 

• A- Society's wants are unlimited, but all resources are limited.
• B- Due to scarcity, choices must be made. Every choice has a cost.
• 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 cost and marginal benefits of every choice. 
• E- Real life situations can be explained and analyzed through simplified models and graphs 

      5. Marginal: 

• Marginal Cost- Cost added by producing one additional unit of a product or service.
• Marginal Benefit: Additional benefit arising from a unit increase in a particular activity

      6. Ceteris Paribus: Other things being equal/ With other conditions remaining the same
     
  7. Opportunity Cost: Loss of potential gain from other alternatives when one alternative is chosen. 
    
  8. Macroeconomics: Branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.
   
  9. Utility: State of being useful, profitable, or beneficial
  
 10. Allocate: Distribute resources for a particular purpose

 11. Price:Amount of money expected, required or given in payment for something
       Cost: Amount that has to be paid to buy or obtain something

 12. Investment- Action of process of investing money for profit or material result. 

 13. Goods:

•  Consumer goods: Goods bought and used by consumers rather than by manufacturers for profucing other goods
• Capital goods: machines and tools used in the production of other goods 

 14. Services: Action of helping ot doing work for someone

 15. Explicit Costs: Direct payment made to others in the course of running a business, such as wage, rent and buy materials.

      Implicit Costs: 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 not pay for rent. 

 16. Positive Economics: Claims that attempt to describe the world as is; very descriptive

• Example: Minimum wage causes unemployment 

 17. Normative Economics: Claims that attempt to prescribe how the world should be

• Example: Government should raise minimum wage. 

 18. Wants: Desires of the citizens

 19. Needs: Basic Requirements for survival 

 20. Shortage: Quantity demanded is greater than quantity supplied
       Surplus: Quantity supplied is greater than quantity demanded (lower price)

 21. Factors of Production:

• Land-Natural Resources
• Labor-Work Excerted
• Capital
• Human Capital: Knowledge and skills a worker gains through education and experience
•  Physical Capital: Human made objects used to create other goods and services 

 22. Entrepreneurship: Risk taker + Innovative 

Production Possibilities Graphs

• Shows alternate ways to use resources
• Show the most that socitey can produce
• If it uses every available resource to the best of its ability 

 6 Key Assumptions 

1. Full emplyment - Everybody should be working

• Laziness, Disabled, Retired (Not working)
• 80 percent to 90 percent factory capacity
• 4 to 5 percent unemployed

      2. Productive Efficiency 
      3. Fixed Resources 

• Land 
• Labor
• Capital

     4. Fixed state of technology
     5. No international Trade
     6. Two goods are produced.

 


    :