Unit 1: Basic Economic Concepts
Chapter 1 focuses on such concepts as: scarcity, the three basic economic ?s, factors of production, the circular flow of the economy, as well as trade-offs and opportunity cost.
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Scarcity is the fundamental economic problem we face because we have unlimited wants/needs but limited resources.
Because of scarcity, we have economic products - products that can have a dollar value placed on them. (Value means the worth of something that can be expressed in dollars and cents.)
All societies have to answer three basic economic questions to help decide what to do with their limited resources:
What to produce?
How to produce?
For Whom to produce?
Because of scarcity, people have to make choices, which are called trade-offs. The cost of making a choice is called opportunity cost, the cost of the next best alternative given up when making a choice.
The circular flow (found on page 25 in the textbook) features the factor market (where the productive resources are bought and sold, and the product market, where the goods and services are offered for sale.
We also have the producers and households/consumers in this circle. Think of it as a two-way street. Something is giving, something is taking. Someone is working to earn wages, to spend in order to buy G & S. If one sector was thrown off (let's say high unemployment) - there are less people earning an income, which means less people spending money in the product market. Which means....!!! |