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
Resources
- 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 a central institute (government)
Types of Economics
- Positive vs. Normative
- Positive Economics: An analysis of economic variables
- Normative Economics: Value judgment 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
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