Notesale: Turn your study into money

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Introduction to Economics:
What is Economics?
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It’s the study of how people try to meet their unlimited needs and wants using limited resources
Scarcity- the condition that results from not having enough resources to produce all the things
people want
Need- those goods and services that are necessary for survival
o Ex
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Pizza, iPhone, computer, a DVD

The Factors of Production
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Resources required to produce items
Land – includes all natural resources
Capital – includes the tools, machinery, factories, etc
...
914 trillion

Goods, Services, and Consumers
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Economic products – goods and services that are useful, relatively scarce, and transferable to
others
Good – an item that is economically useful or satisfies and economic need/want
o Consumer good – a good intended for final use by individuals
o Capital goods – goods used to produce other goods and services
Service – work that is performed by someone to fill an economic need/want
Goods are tangible, services are not
Durable good – a good that will last more than 3 years
Non-durable good – a good that lasts less than 3 years

Value, Utility, and Wealth
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Value – worth that can be measured in monetary terms
o Determined by utility and scarcity of the good
The Paradox of value – a situation where non-necessities have higher value than needs
o Ex
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Salaries pay for labor, rent pays for land, businesses pay for capital goods
Product market – markets where producers sell their goods/services to consumers

Productivity and Economic Growth
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Economic growth occurs when a nation’s total output of goods/services increases over time
Productivity – the measure of the amount of output produced by a given amount of inputs in a
specific period of time
o Goes up whenever you can have increased output with the same input and time
Division of labor – when work is arranged so that individual workers do fewer tasks than before
o Workers become more efficient when they have less tasks to do

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Specialization – when factors of production perform tasks that they can do relatively more
efficiently than others
o Ex
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Trade-Offs and Opportunity Costs
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Trade-Off – any alternative choice
Opportunity Cost – the cost of the next best alternative use of money, time or resources
Cost-Benefit Analysis – a way of thinking about a problem that compares the cost of an action to
the benefits received

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Production Possibilities
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Production Possibilities Frontier – a diagram representing various combinations of goods and/or
services an economy can produce when all productive resources are being used
Purposes
o Shows possible alternatives
o Shows the maximum combinations of output
o Shows the opportunity cost of each choice
o Shows the cost of idle resources
o Shows economic growth

Economic Systems
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Economic System – an organized way of providing for the wants and needs of the people
Three Major Types
o Traditional Economy
o Command Economy
o Market Economy

Traditional Economy
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An economy where the allocation of scarce resources, and nearly all other economic activity,
stems from ritual, habit, or custom
An individual’s roles and decisions are based on tradition, not always desire
Ex
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North Korea, the Soviet Union
Advantages
o Can change direction drastically in a short amount of time
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US
Advantages
o It can adjust to change over time
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Justice systems)

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High degree of uncertainty for workers and businesses
Can fail if three conditions aren’t met
 Markets must be reasonably competitive
 Resources must flow freely from one activity to another
 Workers need the freedom to change jobs

Market Economy
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Capitalism – a system that combines democracy with free enterprise in which private citizens
own and use the factors of production in order to generate profits
Free Enterprise – a market economy in which privately owned businesses have the freedom to
operate for private with limited government intervention
Determined by four factors:
o Private ownership
o Individual initiative
o Profit
o Competition

Mixed Economy
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Mixed Economy – an economy that combines more than one type of economy
Ex
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Employment – general availability of jobs for all (or nearly all)
Stability – prices and wages should not rise and fall precipitously
Growth – steady economic growth and rising standard of living

The Five Pillars Supporting the Enterprise System
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Voluntary exchange – the act of buyers and sellers freely and willingly engaging in market
transactions
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Profit motive – the incentive to make money drives people to work, produce, invent
o Profit – the extent to which persons or organizations are better off at the end of a
period than they were at the beginning
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Government’s role is to regulate the markets within the system so as
to protect the consumer and the system as a whole
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Sole Proprietorship – a business owned and run by 1 person
o The most common type, but also the smallest in size
Advantages
o Easy to start
o Easy to manage because the owner makes all the decisions
o Owner get all the profits
o Owner doesn’t have to pay separate business taxes, just personal income taxes
o Owners are their own boss
o Easy to sell



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