Economics – Basic Concepts
• Chapter 1 Notes
The Fundamental Economic
Problem
• Scarcity is the condition where unlimited
human wants face limited resources.
• Economics is the study of how people
satisfy wants with scarce resources.
• Needs are required for survival; Wants are
desired for satisfaction.
• Someone has to pay for production costs,
so There Is No Such Thing As A Free
Lunch
• Opportunity - Cost
3 Basic Questions
• What must we produce?
–Society must choose based on its needs.
• How should we produce it?
–Society must choose based on its
resources.
• For whom should we produce?
–Society must choose based on its
population and other available markets.
Factors of Production
• Land:
– Society’s limited natural resources
• Capital:
– Means by which something is produced
• Money, tools, equipment, machinery…
• Labor:
– The workers who apply their efforts, skills,
abilities to production
• Entrepreneurs:
– Risk-takers who combine the above 3
Gross Domestic Product
• The dollar value of all final goods and
services, and structures produced within a
country’s borders in a 12-month period.
BASIC ECONOMIC
CONCEPTS
Chapter 1, Section 2
Economic Products
• Goods and services
that are useful,
relatively scarce, and
transferable to
others.
• Because they are
scarce, they
command a price.
Consumer Good
• An item that is useful or satisfies an
economic want
Capital Good
• Manufactured goods that are used to
create other goods and services.
Service
• Work that is performed for someone
Consumers
• A person who used goods and
services
Value
• Worth that can be expressed in
dollars and cents.
of Value
• Some necessities have little value
while other non-necessities have
great value
So, what makes something
valuable?
• Scarcity – do you want more
than is available?
• Utility – is it useful? Does it provide
satisfaction?
The Circular Flow of economic
activity
• Markets are locations (or
mechanisms) for buyers and sellers
to trade
Factor Market:
Where people earn their income
Product Market:
Where people use their income to buy
stuff