ECON 11 LE1

Economics Chapter Summaries

• Economics is the study of how societies allocate scarce resources to produce valuable goods and services, and distribute them among individuals.
• Societies face choices about how to use scarce resources because of scarcity, which is the idea that goods are limited relative to desires.
• Efficiency denotes the most effective use of limited resources to satisfy needs and wants.
• An economy should produce the highest quantity and quality of goods possible given its resources and technology.
• Resources include land, labor, and capital.
• Production involves creating goods (tangible) and services (intangible).
• Consumption involves using goods and services to fulfill current and future needs.
• The concept of distribution addresses how resources are shared among individuals.
• A nation's income inequality is measured by the proportion of national income contributed by the top 1% versus the bottom 50%.
• Economic systems, such as command, mixed, and market economies, are different ways of solving the economic problems of allocation, production, and distribution.
• In a command economy, the government controls all major economic decisions.
• In a mixed economy, both the government and private individuals play a role in the economy.
• In a market economy, individuals and firms make the most of production and distribution decisions.
• A “market mechanism” describes interaction between supply and demand to determine prices and exchanges of goods and services. At equilibrium, prices balance supply and demand.
• Trade and specialization benefit individuals and countries by increasing expertise and the range of goods and services that are available.
• Globalization results from increased trade among countries.
• Societies must decide whether to prioritize current consumption or investment, for example, prioritizing either private goods or public goods.
• Governments can correct issues of market failure by providing public goods, ensuring competition, and preventing externalities.
• Market failure arises when markets do not function optimally.
• Examples of market failures include imperfectly competitive markets or monopolies, externalities, and public goods.
• Markets that are perfectly competitive have many firms, homogeneous products, and no barriers to entry.
• Demand curves represent the amount of a good or service that consumers are willing to purchase at various prices.
• Supply curves represent the amount of a good or service that producers are willing to supply at various prices.
• Changes in market prices or other factors cause shifts in supply and demand curves.
• Market clearing occurs when quantity demanded equals quantity supplied, establishing equilibrium price.
• Price elasticity is the measure of how responsive demand or supply is to a change in price.
• Inelastic demand occurs when a change in price has a small impact on quantity demanded.
• Elastic demand occurs when a change in price has a large impact on quantity demanded.
• Consumers primarily bear the burden of taxes on inelastically demanded goods.
• Producers primarily bear the burden of taxes on inelastically supplied goods.
• Different economic ideas can be used to understand how societies make choices and whether certain economic ideas work better in certain situations.

Economical Concepts

• Scarcity
• Efficiency
• Resources
• Production
• Consumption
• Distribution
• Command Economy
• Mixed Economy
• Market Economy
• Market mechanism
• Trade
• Globalization
• Market Failure
• Perfect competition
• Price elasticity
• Demand
• Supply
• Equilibrium
• Taxes