The foundations of Economics
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Inputs used to produce goods and services
Scarcity - situation where there are limited resources / FOPs but unlimited wants
Key Concepts - Scarcity, Choice, Opportunity Cost
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Human wants are divided into physical objects (goods) & non-physical objects (services)
*Insufficient Factors of Production (Scarcity) will lead to CHOICE & PURSUING OF LESS WASTE
Economics
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A study of choice leading to best possible use of resources in order to best satisfy humans needs under the assumption of rational human behavior
3 Basic Economic Questions
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What to produce
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How to produce
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For whom to produce
Resources
Four Capitals
PPC (Production Possibilities Curve)
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Area under the curve represents the amount of current resource that an Economy has
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The diagram is used to show the tradeoffs between producing different combinations of two goods
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Points on the line represents the best possible combinations of different goods, but it will only be achieved when all of the resources are deployed together with no waste during the production
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The actual output of an Economy will usually be at points inside the curve (ex: F)
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Point E will only achieved if the amount of current resources has increased
*PPC is the curve as shown on the graph
Characteristics
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Overallocation - when too many socially undesirable goods/services are produced
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Underallocation - when too less socially desirable goods/services are produced
Resource Allocation - assigning available resources / FOPs to specific uses among many possible alternatives
Opportunity Costs
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Value of the best alternative that will be sacrificed during the production process in order to obtain something else. This is the result of scarcity and choices.
Ceteris Paribus
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Other things are assumed to be constant and unchanging