Unit 1 - Basic Economic Concepts -

Unit 1 - Basic Economic Concepts - 

• 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. 
• Due to scarcity, choices must be made. Every choice has a cost. 
• 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 cost and marginal benefits of every choice
• Real-life situations can be explained and analyzed through simplified models and graph

• Positive Economics - claims that attempt to describe the world as is, very descriptive in nature, based on facts (ex. minimum wage laws cause unemployment)

• Normative Economics - claims that attempt to prescribe how the world should be, based on opinions (ex. government should raise minimum wage)

• Wants - desires of citizens

• Needs -  basic requirements for survival

• Scarcity - outcome of unlimited wants and needs, but not enough resource, fundamental problem that all societies face, permanent

• Shortage - when quantity demand is greater than quantity supplied, temporary, prices rise

• Surplus - when quantity supplied is greater than quantity demanded, temporary, prices drop

• Good - tangible commodity

• Factors of Production - 
• land - natural resoucwes
• labor - work exerted
• capital - 
• Human capital - knowledge and skills that a worker gains throuugh education and eperience
• Physical experience -  man made objects used to create other object
• entrepreneurship - innovative, considered a risk taker

• Marginal cost - the cost added by producing one additional unit of a product or service

• Marginal benefit -  the additional satisfaction or utility that a person receives from consuming an additional unit of a good or service

• Ceteris Paribus - “all else being equal”, used when making arguments about on cause and effect

• Opportunity cost - a benefit that a person could have received, but gave up, to take another course of action

• Macroeconomics - the part of economics concerned with large-scale or general economic factors

• Microeconomics - the part of economics concerned with single factors and the effects of individual decisions

• Utility- measurement of "usefulness" that a consumer obtains from any good or service

• Allocate - distribution of resources 

• Price - the quantity of payment or compensation given by one party to another in return for one unit of goods or services

• Cost - gains and losses of any goods that have a value attached to them by any one individual

• Investment - The purchase of goods that are not consumed immediately, but are used in the future to earn more profits

• Consumer good - Finished product

• Capital good - items used in the creation of other goods

• Services - a transaction in which no physical goods are transferred from the seller to the buyer, actions or activities are transferred instead

• Explicit costs -  out-of-pocket costs for a firm

• Implicit costs - the opportunity cost of resources already owned by the firm and used in business