- Scarcity - limitations; limited goods or services, limited time, or limited abilities to achieve the desired ends; fundamental economic problem that all societies face
- Economics - a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services
- 1st Pillar of Economic Wisdom - nothing in our material world can come from nowhere, nor can it be free; everything in our economic life has a source, a destination, and a cost that must be paid by someone
- Five Key Economic Assumptions:
- Society's wants are unlimited, but ALL resources are limited (scarcity)
- Due to scarcity, choices must be made. Every choice has a cost (trade-off)
- Everyone's goal is to make choices that maximize their satisfaction. Everyone acts in their own "self-interest".
- Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice
- Real-life situations can be explained and analyzed through simplified models and graphs
- Marginal - having to do with enterprises that produce goods or are capable of producing goods at a rate that barely covers production costs
- Marginal Cost - an increase in total cost that results from a one unit increase in output
- Marginal Benefit - the incremental value a customer perceives from purchasing and using an additional unit of good or service
- Ceteris Paribus - "all other things being equal"; an economist can hold all variables in the model constant and tinker with them one at a time
- Opportunity Cost - a benefit, profit, or value of something that must be given up to acquire or achieve something else
- Macroeconomics - a study of economics in terms or whole systems especially with reference to general levels of output and income and to the interrelations among sectors of the economy
- Microeconomics - a study of economics in terms of individual areas of activity
- Utility - the capacity of a good or service to meet the demand of a consumer
- Allocate - the process of dividing up and distributing available, limited resources to competing, alternative uses that satisfy unlimited wants and needs
- Price - the amount of money that has to be paid to acquire a given product
- Cost - the amount that has to be paid or given up to acquire a given product
- Investment - as asset or item that is purchased with the hope that it will generate income or will appreciate in the future
- Goods - a consumable item that is useful to people but scarce in relation to its demand, so that human effort is required to obtain it
- Consumer Goods - products that are purchased for consumption by the average customer; finished product
- Capital Goods - tangible assets such as buildings, machinery, equipment, vehicles, and tools that an organization uses to produce consumer goods for the other businesses; items used in creation of other products
- Services - a type of economic activity that is intangible, is not stored, and does not result in ownership
- Explicit Costs - clear, obvious cash outflows from a business that reduced its bottom-line profitability
- Implicit Costs - any cost that has already occurred but is not necessarily shown or reported as a separate expense
- Positive Economics - claims that attempt to describe the world as is (based on fact)
- very descriptive in nature
- ex: minimum wage laws causes unemployment
- Normative Economics - claims that attempt to prescribe how the world should be (based on opinion)
- ex: the government should raise minimum wage
- Wants - desires of citizens
- Needs - basic requirements for survival
- Shortage - temporary; quantity demanded is greater than quantity supplied; price goes up
- Surplus - quantity supplied is greater than quantity demanded; price goes down
- Factors of Production:
- Land - natural resources
- Labor - work exerted
- Capital - human capital (knowledge in skills that a worker gains through education and experience); physical capital (human-made objects used to create other objects)
- Entrepreneurship - innovative & risk-taking people
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