BEC - Basic Economic Concepts Overview

Basic Economic Concepts Overview

Introduction

The focus of this unit is on the study of choices which people and societies make as they use scarce resources to meet their wants and needs. The unit examines the nature of economic wants and their relationship to productive resources. An understanding that these resources are scarce, and have alternative uses, leads to the fact that people must engage in purposeful decision-making along with interaction with other people, institutions, and nations. The unit will also encompass an examination of the development of economic systems and how each system impacts the decision-making process for societies and the attainment of various economic goals.

Essential Questions

1. What are the implications of scarcity?
2. How is marginal analysis used to make rational decisions?
3. How do each of the major economic systems seek to address the fundamental economic questions?
4. How is the production possibilities curve used to demonstrate the concepts of scarcity, trade-offs, opportunity costs, efficiency, and growth?
5. How can societies improve their well-being by promoting economic growth and trade?
6. How does the circular flow model reflect the interdependence among groups within an economy?

Key Terms

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Economics - the study of how society allocates its scarce resources.
Microeconomics - the study of how households and firms make decisions and how they interact in markets.
Macroeconomics - the study of economy-wide phenomena, including inflation, unemployment, and economic growth.
Scarcity - the limited nature of society's resources.
Trade-offs - The reality of scarce resources implies that individuals, firms, and governments are constantly faced with difficult choices that involve benefits and costs.
Opportunity Costs - the value of the sacrifice made to pursue a course of action.
Factors of Production - These are the inputs used to produce goods and services.
Land - considered to be the natural resources or 'gifts of nature' not created by human effort.
Labor - viewed as people with all their abilities and efforts.
Capital - the equipment and structures used to produce goods and services.
Entrepreneur - An entrepreneur is a risk-taking individual in search of profit who coordinates the other three factors of production.

Marginal Analysis - the process of making decisions based upon weighing the marginal benefits and costs of that action.
Marginal Cost - the additional cost of producing one more unit.
Marginal Benefit - the additional benefit received from the consumption of the next unit of a good or service.
Specialization - the production of goods, or performance of tasks, based upon comparative advantage.
Voluntary Exchange - the act of buyers and sellers freely and willingly engaging in market transactions.
Division of Labor - the division of work into a number of separate tasks to be performed by different workers.
Command Economy - an economic system characterized by a central authority that makes most of the major economic decisions.
Market Economy - an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.
Traditional Economy - an economic system in which the allocation of scarce resources and other economic activity is the result of ritual, habit, or custom.
Mixed Economy - a type of economic system where people carry on their economic affairs with some government involvement.

Consumer Sovereignty - The belief that the consumer is the ruler of the market when determining the types of goods and services produced.
Profit Motive - the driving force that encourages people and organizations to improve their material well-being.
Economic Freedom - The broad economic goal that promotes people having the ability to make their own economic decisions.
Economic Security - The broad economic goal that promotes protection from adverse economic events.
Economic Equity - The broad economic goal that promotes the concept or idea of fairness in the economy.
Economic Growth - The broad economic goal that promotes the ability of an economy to increase production capabilities.
Economic Efficiency - The broad economic goal that seeks to ensure that decisions are made so that benefits are greater than costs. 
Economic Stability (Price Stability) - a broad economic goal that seeks an absence of excessive fluctuations in the macroeconomy.
Standard of Living - This is the quality of life, based on ownership of necessities and luxuries that make life easier.
Human Capital - the accumulation of investments in people, such as education and on-the-job training.
Absolute Advantage - the ability to produce more of a good than all other producers.
Comparative Advantage - the ability to produce a good at a lower opportunity cost than all other producers.
Free Trade - the unrestricted trade between people and nations.'
Trade Barrier - an impediment to the flow of goods/services/capital across international boundaries.
Tariff - a tax on goods produced abroad and sold domestically.
Quota - a maximum amount of a good that can be imported into the domestic market.
Embargo - the prohibition on the export or import of a product.
Exchange Rate - the amount of one currency you must give up to get one unit of the second currency.
Factor Market - market in which the factors of production are bought and sold.
Product Market - market in which finished goods and services are bought and sold.
Circular Flow Model - model that shows how households and firms circulate resources, goods, and income through the economy.

 

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