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Econ Ch 1 & 2
Transcript of Econ Ch 1 & 2
What is Economics?
The study of how individuals, families, businesses, and societies use limited resources to fulfill their needs and unlimited wants
economics that deals with individuals and companies (trees)
economics that deals with the economy as a whole (forest)
you only need the basic things necessary to survive
everything other then basic survival needs are wants
everything in this world (tangible and intangible) is limited.
people do not have and cannot have enough income, time, and other resources to satisfy their every want.
Four Factors of Production
all natural resources
the tools and equipment used
to create goods and services
ability to create new products
using technology to increase
productivity any of the above.
the amount of output from
any given level of input
Production Possibility Curve
give up one good or service
to purchase or produce another
the value of the next best alternative
given up for the alternative that was chosen
graph showing the maximum combinations
of goods and services that can be produced
from a fixed amount of resources in a
given period of time
the work people perform to
create goods and services
1 hour of studying = C
2 hours of studying = B
3 hours of studying = A
How to use resources to satisfy people's wants and needs
What should be produced?
How should it be produced?
For whom should it be produced?
based on customs and beliefs passed
down from generation to generation
Example - Native Alaskans (Inuit)
Government makes all of the decisions
Everyone makes decisions based on their own interests
Market - freely chosen activity between buyers and sellers of goods and services
Circular Flow of Economic Activity - an economic model that pictures income as flowing continuously between businesses and consumers
Some combination of the above
Example the United States