Unit 1: Basic Economic Concepts Flashcards
Economics
The study of scarcity and choice
Scarcity
Humans have unlimited desires, but limited resources which leads to them having to make a choice
Macroeconomics
The study of the large economy as a whole or economic aggregates
What are the four factors of production?
Land, labor, capital, entrepreneurship
Land
All the natural resources that go into producing a good or service
Labor
Any effort a person devotes to a task for which that person is paid
Physical Capital
The human made resources used to produce goods and services
Human Capital
The skills and knowledge a person gains through education and experience
Entrepreneurship
A leader who uses the other factors of production to create goods and services
Price vs Cost
The amount that the consumer/buyer paid vs the amount that the seller paid to produce that good/service
Investment
The money spent by businesses to improve their production
Consumer vs Capital Goods
direct consumption vs indirect consumption
Trade offs
All the alternatives to the choice you’re making
Opportunity Cost
The next best alternative to the choice you’re making
The PPC
A production possibilities curve is a model that shows the alternative ways an environment can use its resources by depicting opportunity costs, scarcity, trade-offs, and efficiency
4 Key assumptions of the ppc
- Fixed technology
- Fixed resources
- Full employment of those resoucres
- Only two goods can be produced
Constant Opportunity Costs
When resources are adaptable to producing either good leading to a straight line PPC
Laws of Increasing opportunity costs
As the production of one good increases, the opportunity cost/forgone production of the other good also increases because goods are not easily adaptable to creating the other resource
3 Shifters of the PPC
- Changes in trade (allows for more consumption)
- Changes in tech (rarely decreases production)
- Changes in resource quality or quantity
Demand
The different quantities of goods that consumers are able and willing to purchase at different prices
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The law of demand
There is an inverse relationship between price and quantity demanded
5 shifters of demand
- Tastes and preferences
- Income (Normal and inferior goods)
- Future expectations
- Number of consumers
- Price of Related Goods (substitutes and complements)
What is it and the relationship
Substitutes
Goods that can replace one another. If the price of a substitute increases, the demands for the main good increases and vice versa
What is it and the relationship
Complement
Goods that are bought and used together. As the price of a complement increases, the demands for the main good decreases and vice versa.
What is it and the relationship
Normal goods
Luxury goods. As icnome increases, demand for luxury goods increase and vice versa
Inferior Goods
Regular, ordinary goods. As income increases, demand for inferior goods decreases and vice versa
Supply
The different quantities of goods that sellers are able and willing to sell at different prices
The law of supply
There is a positive relationship between price and quantity supplied
5 shifters of supply
- Price/availability of resources
- Gov regulations (taxes and subsidies)
- Number of sellers
- Technology
- Expectations of future profits
The double shift rule
If the supply and demand curves shift at the same time, either the price or quantity demanded will be indeterminate
