Basic concepts of Economics; What is it?

The following notes are the basic concepts in the mainstream (Capitalistic, neo-classical) Economics.

Scarcity and Choice

  • The economic issues are due to scarcity.
  • Scarcity is the economy’s constant base condition. The finite capacity to produce goods and services will always fall short  of satisfying everyone’s infinite demand for more.
  • Therefore, resources always have alternative uses and every economic decision is a trade-off. The value of this trade-off is called opportunity cost.

Economic Problems

  • What to produce
  • How to produce
  • For whom to produce


  • Land: physical land and minerals
  • Labor: people
  • Capital: machinery, transport
  • Entrepreneurship: management (ideas + risks)

Economic Systems

  • Free market economy: Resources are allocated by supply and demand
  • Planned (Command) economy: Resources are allocated by central institute (government)

Types of Economics

  • Positive vs. Normative
    • Positive Economics: An analysis of economic variables
    • Normative Economics: Value judgement of economic issues
  • Micro vs. Macro
    • Microeconomics: Individual decisions of household and companies; the demand and supply within a particular market
    • Macroeconomics: Analyses the general issues of the whole such as inflation, unemployment, business cycles, growth and recession, and international trade