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, BASIC ECONOMIC CONCEPTS & PRINCIPLES
WHAT IS ECONOMICS? ECONOMIC PROBLEM
social science that examines how individuals, households, and firms SCARCITY PROBLEM
satisfy their unlimited needs and wants with limited and scarce
resources to satisfy the unlimited wants and needs of society with the use of
limited resources
→ People only have a limited amount of money BUT many needs and
desires to satisfy
→ The government also has a limited amount of money and cannot
NEEDS WANTS satisfy all its desires
= goods and services ESSENTIAL for = human desires for goods and services
basic survival ECONOMIC SYSTEM [3 CENTRAL QUESTIONS]
Z fancy technology
Z Housing & Safety Z trendy clothes/attire 1. OUTPUT QUESTION
Z Food Z Treats (food and gifts)
Z Water → WHAT GOODS AND SERVICES WILL BE PRODUCED
AND IN WHAT QUANTITIES?
OPPORTUNITY COST
DEMAND 2. INPUT/INPUT QUESTION
= the loss of other alternatives when one
= occurs when consumers are able and alternative is chosen → HOW will each of the goods and services be
willing to buy a product at a certain price = loss of value/benefit that would have been
produced?
caused by participating in a certain activity → HOW MANY of the scarce resources will be used in
= desires become real demand
relative to an alternative activity that
the production of each good
provides a higher return in value or benefit
GOODS SERVICES
. MICROECONOMICS MACROECONOMICS → tangible objects [food, → intangibles [medical
clothing, houses] services, legal services,
→ individual decisions → functioning of the
financial services]
[consumers, producers, economy as a whole
importers, government, [unemployment, inflation,
exporters, companies] growth, and monetary and FREE GOODS ECONOMIC GOODS
fiscal policy] W not rare = no price [air, sunshine] W goods produced at a cost from
W freely available in unlimited scarce resources (scarce goods)
quantities W limited quantity available
W use value BUT NOT EXCHANGE W requires a price
VALUE W uses & exchange value
W offer out of control of people W offer is controllable
ECONOMIC PROBLEM W Wealth / prosperity = multipliable
in quantity
SCARCITY PROBLEM
FINAL GOODS INTERMEDIATE GOODS
to satisfy the unlimited wants and needs of society with the use of W goods used/consumed [bread] W goods purchased to be used as
limited resources inputs in the production of other
goods
ABSOLUTE SCARCITY
→ when we have enough resources to buy goods but it’s just not PRIVATE GOODS PUBLIC GOODS
W goods consumed by individuals & W use by community in general and
available
consumption by others are consumption by others not
excluded excluded
RELATIVE SCARCITY
CAPITAL GOODS CONSUMER GOODS
→ when there are enough goods to satisfy a population's needs but W goods not consumed, but used in W goods used for consumption by
most of the population is too poor to buy them [developing countries] the production of other goods individuals/households
HOMOGENEOUS GOODS HETEROGENEOUS GOODS
W goods exactly the same W differentiated goods available in
different varieties
, ECONOMIC CIRCUIT MODEL diagram showing HOW money, goods,
Open economy
services and factors of production move
between buyers & sellers in the economy
type of economy where not only the
(relationship between economic participants >
domestic factors but also entities in production, income & spending in the
other countries are involved in the economy)
trade in products [trade with foreign
4- sector economy sector]
= total production, consumption, imports &
exports [MACROECONOMIC CONCEPTS]
2 MAIN MARKETS:
→ FACTOR MARKET : production
factors market
→ GOODS MARKET : goods and
services market [homogeneous
products]
NOTE
• Leaks = T, S and M
• Injections = I, G and X
• Goods + Services = G + D
LEAKAGE = OUTFLOWS of money, products /
resources from the economic cycle [savings (S) ,
Taxes (T), Imports (Z / M)]
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