Introduction to Economics Flashcards

Understanding Economics

• Economics explores how individuals satisfy needs and wants through choices.
• It addresses the challenge of scarcity, where desires exceed resource availability.

Scarcity vs. Shortage

• Scarcity is a constant state due to limited resources compared to unlimited wants.
• A shortage is a temporary condition, occurring when suppliers cannot provide goods at existing prices.

Goods and Services

• Goods: Tangible products like food, clothing, and electronics.
• Services: Intangible actions provided by one person to another, like haircuts or tutoring.

Resources and Factors of Production

• All resources are scarce, including land, labor, and capital used in production.
• Factors of Production consist of Land, Labor, and Capital, which are essential resources for creating goods and services.

Components of Factors of Production

• Land: Refers to natural resources such as water, trees, and minerals.
• Labor: The effort devoted to tasks for payment, including skilled professions and unskilled labor.
• Capital: Human-made resources like machinery and buildings that aid in production.
  • Physical Capital: Tangible items like tools and equipment.
  • Human Capital: Knowledge and skills gained through education and experience.

Role of Entrepreneurs

• Entrepreneurs combine land, labor, and capital to create goods and services.
• They take on risks to innovate, start businesses, and contribute to economic growth.

Trade-offs and Opportunity Costs

• Trade-offs represent all alternatives forgone when choosing one action over another.
• Opportunity Cost refers to the most valued alternative sacrificed, such as choosing a computer over a vacation.

Production Possibilities

• Production Possibilities Curve illustrates various ways to utilize a country's resources.
• Production Possibilities Frontier indicates the maximum efficient production levels.

Efficiency and Utilization

• Efficiency means optimizing resource use for maximum output of goods and services.
• Underutilization occurs when resources are not fully employed to their potential.

Law of Increasing Costs

• As production shifts from one item to another, more resources become necessary to boost the output of the second item.