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Rational behavior: making decisions logically weighing personal benefits and costs
of available actions, then selecting the most attractive option the consumer wants
Economic problem: unlimited wants but limited resources (scarcity)
Economic resources: basic items used in all types of production, including natural,
capital, and human resources.
Natural Resources
Capital Resources
Human Resources
- From nature used in
- Processed
- Labour is human
production including
materials,
effort employed
land, raw materials,
equipment, and
directly into
and natural
buildings used in
production
- Entrepreneurship
processes
production
- (land, minerals,
- Real assets
: initiative, risk- (printing plant +
forest, sunlight,
taking, and
presses)
water power)
innovation
Resource Income: natural resource = owner receives a rent, capital resource =
income in the form of interest, labour = wages
Economics: the study of how to distribute scarce resources to make choices (micro
and macroeconomics)
Microeconomics: economics that focuses on the behavior of individual participants
in various markets
Macroeconomics: takes a wide-ranging view of the economy, studying the behavior
of economic sectors
Economic models: Simplifications of economic reality like laws, principles, and
theories
-
1.2
Economic Choice
Economic thinking and decision-making involves 2 major factors: utility and cost
Utility: the satisfaction gained from any action
Self-interest motive: assumption that people act to maximize their own welfare
Opportunity cost: utility that could have been gained by choosing and actions best
alternative
1.3
ASSUMPTIONS: only two items are produced, resources and technology are fixed,
economic resources are employed to their full potential
-
Production Possibilities Schedule: table that shows the possible output combinations
for an economy
Production Possibilities Curve: graph that illustrates the possible output
combinations for an economy
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Role of Society
-
Increasing Opportunity Costs: the concept that as more of one item is produced by
an economy, the opportunity cost of additional units of that product rises
Economic Growth: an increase in an economys total output of goods and services
-
1.4
Economic Systems
Traditional Economy
-
Market Economy
-
Command Economy
-
Mixed Economies
-
Market reforms allowed their supply of oil, minerals, and fresh water
Economic Goals
-
Complementary goals
-
Success in reaching one economic goal makes another goal easier to achieve
(full employment and economic growth)
Conflicting goals
Some goals are bound to conflict so that attaining one goal makes another
goal more difficult to achieve
(price stability and the full employment)
One must set priorities and that one goal is achieved at the cost of another