Chapter 1: Economics: The Core Issues
Economy: money and time
Aggregation of individual production and consumption decisions
Buying and selling (consumers and producers)
Link between individual choices and collective choices
Producers: make the most money, high prices
Consumers: lowest prices, get the most product for the least amount of money
Prices tend to meet in the middle so that both producers and consumers benefit
Scarcity: Lack of enough resources to satisfy all desired uses of those resources
Economics: The study of how best to allocate scarce resources among competing uses
Factors of production: resource inputs used to produce goods/services
Land (agriculture)
Labor
Capital (money)
Entrepreneurship
*all have a limited supply, therefore we must allocate
Limits of output/how much we can produce → allocate and chose
Market Economy: The Invisible Hand (Adam Smith)
Laissez Faire: The doctrine of “leave it alone” or nonintervention by government
Mixed Economy:
Uses market signals and government directives to allocate goods and resources
Market Failure: an imperfection in the market mechanism that prevents optimal outcomes
Government Failure: government intervention that fails to improve economic outcomes
*government should only do things/intervene to improve economy
Seeking Balance: minimizing failures selecting appropriate balance between government and
market
Ceteris Paribus: The assumption of nothing else changing
Opportunity cost: The next most desired good or service forgone to obtain something else
What is given up to undertake a chosen activity
Short Run vs. Long Run
Production Possibilities: The alternative combinations of final gods and services that could be
produced in a given time period with all available resources and technology