Section 1- Nature of Economics

• Economics


  A social science that deals with the production, consumption, distribution and protection of goods and services to satisfy the unlimited wants and needs of an individual and a society
• Economy


  A system of organizations and institutions that facilitate or play in part in the production and distribution of goods and services in a society
• Economic systems


  A network of organizations designed to help solve the Economic Problem, comprising individuals/households, firms and businesses, and the government
• Economic problem


  Scarcity - there are not enough resources to satisfy a society's unlimited wants and needs
• Scarcity


  Leads to the need to make choices in how to allocate resources
• Utility


  The satisfaction derived or expected to be derived from the consumption of goods and services, measured in utils
• Sectors of an economy

  • Primary sector (extraction of raw materials)
  • Secondary sector (manufacturing of goods and services)
  • Tertiary sector (services provided by individuals)
• Opportunity cost


  The next best alternative given up
• Money cost


  The cost of an item expressed in terms of money
• Types of opportunity cost

  • Zero opportunity cost
  • Increasing opportunity cost
  • Decreasing opportunity cost
  • Constant opportunity cost

  
• Production Possibility Frontier (PPF)


  A curve that illustrates the variations in the amounts that can be produced of two products if both depend on the same finite resources for their manufacture

  
• Points on the PPF

  • A, B, C (efficient)
  • X (inefficient)
  • Y (unattainable)
• The main influences on individuals when making economic decisions are past experiences, a variety of cognitive biases, an escalation of commitment, sex drive, income, age and socioeconomic status
• The main influences on firms when making economic decisions are employment, wages, prices/inflation, interest rates and consumer confidence
• Consumer confidence


  An economic indicator that measures the degree of optimism that consumers have regarding the overall state of a country's economy and their own financial situations
• Economic system - the way an economy is organized to produce, distribute, and consume goods and services
• Market economy - economic system where prices are determined by supply and demand
• Command economy - economic system where government determines what will be produced and how it will be distributed
• Command economy - An economy where all major economic decisions are made by government officials rather than through markets.
• Mixed economy - A combination of command and market economies with some industries being controlled by the government while others operate under free market conditions.
• Command economy - economic system where government controls production and distribution of goods and services
• Mixed economy - economic system with elements of both market and command economies
• Capitalist economy - economic system based on private ownership of property and free markets
• Socialist economy - economic system based on public ownership of property and production
• Mixed economy - A combination of market and command economies
• Economic growth - increase in output per capita over time
• Income inequality - unequal distribution of income among individuals or households within an economy
• Communism - political and economic ideology advocating for a classless society without social classes, money, or state; typically implemented as a dictatorship led by a single party
• Socialism - economic system that emphasizes collective or governmental control over resources and industry
• Inflation rate - average annual percentage change in consumer price index (CPI)
• Poverty - lack of access to basic needs such as food, shelter, healthcare, education, and employment opportunities
• Unemployment - condition of being without work but willing and able to work at the prevailing wage rate
• Unemployment - condition where people are willing and able to work but cannot find jobs
• Underemployment - situation where workers have less than full-time employment despite being available and wanting more hours
• Laissez faire - the policy of allowing businesses to operate freely without government intervention
• Gross Domestic Product (GDP) - total value of all final goods and services produced within a country's borders during a specific period