Unit I: Basics of Economics

• Macro- vs. Micro- Economics

macroeconomics-study of major components of economy (e.g. inflation, wage laws, international trade) -THE ENTIRE ECONOMY-
microeconomics-study of how households and firms make decisions and how they interact in markets (e.g. supply and demand, market structures)

• (+) vs. normative economics

positive economics-attempts to describe the world as it is (e.g. minimum wage -$7.25-, causes unemployment) -can prove it is true, VERY DESCRIPTIVE

normative economics-how world should be (e.g. govt should raise minimum wage) -VERY PRESCRIPTIVE

• wants vs. needs

want-a desire

need-requirement

• scarcity vs. shortage

scarcity-most fundamental problem facing all societies, satisfying unlimited wants w/ limited resources (e.g. gas)

shortage-situation in which quantity demanded is quantity supplied

• goods vs. services

goods-tangible (touchable) commodity (useful thing)

2 types-

   1. capital goods-items used in creation of other goods (e.g. factory machinery, trucks)

   2. consumer goods-intended for final use by consumer (e.g. burger)

service-work performed for someone else

• 4 Factors of Production

1. land-natural resources

2. labor-workforce (how much is exerted)

3. capital

-human capital-knowledge and skills worker gains through education and expertise (skill)

-physical capital-human made objects used to create other goods and services      (e.g. tools, machinery, equipment, buildings)

4. entrepreneurship-involves risk-taking, being innovative and inventive