Unit I - Basic Concepts of Economics

ESSENTIAL KNOWLEDGE FOR ECONOMICS

1. Microeconomics v. Macroeconomics
1. Microeconomics
1. The study of how households and firms make decisions and how they interact in the market.
2. Supply and demand, market structures
2. Macroeconomics
1. The study of the major components of the economy
2. International trade, inflation, wage laws
2. Positive v. Normative Economics
1. Positive
1. Attempt to describe the world as is, very descriptive in nature
2. Normative
1. Claims that attemtps to prescribe how the world should be, very prescriptive in nature
2. Government should raise the minimum wage
3. Wants and Needs
1. Wants are desires
2. Needs are basic requirements for survival
4. Scarcity v. Shortage
1. Scarcity
1. The most fundamental economic problem that society faces
2. Satisfying unlimited wants with limited resources
2. Shortage
1. A situation in which quantity demanded is greater than quantity supply
2. Food item not available, for example

1. Goods
1. Capital Goods
1. The items used in the creation of other goods, such as factory machinery and trucks.
2. Consumer Goods
1. Goods that are intended for final use by the consumer.
2. Services
1. Work that is performed for someone.
3. Factors of Production
1. Land
2. Labor
3. Entrepreneurship (Risk-taking, Innovation)
4. Capital
1. Physical
1. Human-made objects used to create other goods, (e.g. buildings and tools).
1. Human
1. The knowledge and skills a worker gains through education and experience.

1. Opportunity Cost
1. The most desirable alternative given up by making a decision.