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Economics
Economics is a science that studies the allocation of scarce resources.
Types of economic agents
•Firms
•Consumers
• Government
Main goal of firms
Maximize profit
Basic Economic Problem
Limited resources and unlimited wants result in the necessity to make choices
Capital goods
Capital goods are goods used in the production of other goods.
Non-renewable
Resources, which cannot be reproduced at a rate that can sustain its consumption
Questions Arising from the Problem of Choice
•What to produce (and in what quantity)?
•How to produce (how to use resources)?
•For whom to produce (whose wants to satisfy and to what extent)?
Why might an economy be producing inside its PPC?
Underemployment of resources
Renewable resource
Resources, which can be reproduced at a rate that can sustain its consumption
Trade-off?
A situation, when choosing more of one thing means giving up something else in exchange.
Economic growth
Economic growth occurs when there is an increase in the productive potential of an economy.
free good
A good that is not scarce, and therefore is available without limits
Opportunity cost
The cost of any activity measured in terms of the value of the next best alternative that is foregone (=not chosen).
PPC
The Production Possibility Curve (PPC) is an economic model that considers the maximum possible production (output) that a country can generate if it uses all of its factors of production to produce only two goods/services
economic good
Anything that satisfies wants and requires limited resources