Economics Unit 1 Introduction to Economics

University:
University of South Carolina
Course:
ECON 224 | Introduction to Economics
Academic year:

2021
Views:

319

Pages:

4
Author:

gildnar99xu

4 UNIT 1: Introduction to Economics What Is Economics? - The study regarding how money is consumed, produced, and transferred. - The study of choices that lead to the best possible use of resources in order to best satisfy human needs and wants (of which are constant and unlimited). Scarcity ● Fundamental concept of how economies functions ● Exists because factors of production are finite/limited, while human wants are infinite/unlimited ● Not enough resources to produce everything that human beings need and want ● Human needs and wants are satisfied by goods and services: ○ Physical objects = goods (food, clothing, cars) ○ Non-physical activities = services (education, health care, banking) ● There are 3 questions economies must pose because of scarcity: 1. What to produce 2. How to produce it 3. Who to produce it for ● Resource allocation - to assign resources to specific uses, which are chosen among many choices ○ Includes reallocation, underallocation, and overallocation Factors of Production ● Resources are the inputs used to produce goods + services wanted by people ● These inputs are known as factors of production and are scarce. ● Examples: human labour, machines, metals inside the earth 5 The 4 Factors of Production Factor What it is Example Land (aka natural capital) Natural resources, “gifts of nature” Oil reserves, forests, mines Labour Physical and mental effort contributed Economist, doctor, teacher Capital (aka physical The man made factors that capital or capital good) physically produce the output Entrepreneurship Tools, factories, buildings, machinery *Organizes the other 3 factors Skills, knowledge Special human skill, involves ability to innovate by developing plans to allow business operations to function - Takes on risk or success of the business Opportunity Cost - The value of the next best alternative and must be given up to gain something else. - Results from scarcity and having to make a choice Productions Possibility Model - A simple model that shows the important economic concepts (scarcity, choice, opportunity costs). - Represents all efficient combinations of two goods produced - Bowed out curve = increasing opportunity cost - Bowed down curve = decreasing opportunity cost 6 Absolute Advantage - When a good or service can be produced in a greater quantity and in a given amount of time Comparative Advantage - When a good or service can be produced at a lower opportunity cost than another Example curve: 1 Combination of the resources: 2 7 - Curve represents the production possibilities when resources are allocated for this combination of resources: microwave ovens and computers. How Do Economists Approach the World? - Economists’ objective is to make decisions based on society’s best interests. Economic decision-making: - Based on assumptions and the outcome of certain decisions, made by posing statements that are positive and normative - - Positive economics: - Used to describe, explain, and predict outcomes - Based on positive, forward thinking Normative economics: - Basis of policy-making in government, based on beliefs of what outcomes should be **These two economic basis of thinking for economist, work together to allow the economy to be successful

Economics Unit 1 Introduction to Economics

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