Basics of Economics: Scarcity, Resource Allocation, and Utility

Scarcity

Opportunity cost is the value of the next best alternative that must be forgone to undertake a certain activity.

The law of diminishing marginal utility states that as a person consumes more and more units of a specific product, the additional satisfaction or utility derived from each additional unit decreases.

<p>Scarcity forces individuals and societies to make choices about how to allocate limited resources, leading to the concept of opportunity cost where the next best alternative is foregone.</p> Signup and view all the answers

<p>The law of diminishing marginal utility states that as a person consumes more units of a product, the additional satisfaction or utility from each additional unit decreases. This influences consumer behavior by explaining why people are willing to pay less for each additional unit of a product.</p> Signup and view all the answers

<p>Business economics is relevant as it provides a framework for analyzing and evaluating business decisions related to resource allocation, production, cost management, and market strategies. It helps firms make informed choices to optimize their use of scarce resources.</p> Signup and view all the answers

<p>Utility in economics refers to the satisfaction or pleasure a consumer obtains from consuming a good or service.</p> Signup and view all the answers

<p>The law of equi-marginal utility states that a rational consumer will distribute his or her money income among various goods in such a way that the utility derived from the last unit of money spent on each good is equal.</p> Signup and view all the answers

<p>The Cobb Douglas function is a production function that shows the relationship between inputs and outputs in the production process.</p> Signup and view all the answers

<p>Returns to scale refer to the change in output resulting from a proportional change in all inputs in the long run.</p> Signup and view all the answers

<p>The types of demand in economics include individual demand and market demand.</p> Signup and view all the answers

<p>Price elasticity of demand measures the responsiveness of quantity demanded to a change in price.</p> Signup and view all the answers

<p>Perfect competition is a market structure with a large number of small firms producing identical products, while monopolistic competition is a market structure with many firms producing similar but not identical products.</p> Signup and view all the answers

<p>In a two-sector economy, the circular flow of income represents the flow of goods and services and the flow of money between households and firms.</p> Signup and view all the answers

<p>Inflation is a sustained increase in the general price level of goods and services, leading to a decrease in the purchasing power of money. Its consequences include reduced real value of savings, uncertainty in financial planning, and redistribution of income and wealth.</p> Signup and view all the answers

<p>The factors of production are land, labor, capital, and entrepreneurship. They contribute to the production process by providing the necessary resources for the creation of goods and services.</p> Signup and view all the answers