Applied Economics: Week 1-2

Economic System

the means through which society determines the answers to the basic economic problems mentioned

Relative Scarcity

A situation where resources are limited compared to the demands placed upon those resources via wants and needs occurs not because good is scarce per se and is difficult to obtain but because of the circumstance that surround the availability of the good.

Traditional Economy

An economy in which decisions are based on traditions and practices upheld over the years and passed on from generation to generation. Methods are stagnant and therefore not progressive. Exist in primitive and backward civilizations.

What to produce and how much How to produce For whom to produce

Basic Economic Problems of Society

Positive Economics

Deals with what is - things that are actually happening such as the current inflation rate, the number of employed labor, and the levels of the Gross National Product.

Market Economy

Economic decisions are made by individuals or the open market.

Alfred Marshall

He described economics as a study of mankind in the ordinary business of life.

Scarcity

Limited quantities of resources to meet unlimited wants the reason why we practice economics

Unemployment Recession Inflation Balance of payments/current account deficit Exchange rate volatility Development economics Poverty Cycle

Macroeconomic Problems

Problem of Externalities Environmental Issues Monopoly Inequality/Poverty

Microeconomic Problems

Labor

Physical and human effort exerted in production. The income received by them is referred to as WAGE

Normative Economics

Refers to what should be - that which embodies the ideal rate of population growth or the most effective tax system It focuses on policy formulation that will help to attain the ideal situation

False (insufficient)

Scarcity is a condition where there are sufficient resources to satisfy all the needs and wants of a population. true or false?

Land

Soil and natural resources that are found in nature and are not man-made. Owner receives a payment in the form of RENT

Command Economy

The authoritative system wherein decision - making is centralized in the government or a planning committee.

Economics

The study of how people seek to satisfy their needs and wants by making choices is the social science that involves the use of scarce resources to satisfy unlimited wants.

Macroeconomics

The study of the economy as a whole It focuses on the overall flow of goods and resources and studies that causes of change in the aggregate flow of money, the aggregate movement of goods and services, and the general employment of resources. It is about nature of economic growth, the expansion of productive capacity, and the growth of national income.

It studies human behavior

Why is economics a social science?

Economic Resources

also known as factors of production all natural, human, and manufactured resources that go into the production of goods and services these resources are, by nature, limited and therefore command a payment becomes the income of the resource owner. income earned is called factor income

Opportunity Cost

the most desirable alternative given up as the result of a decision refers to the value of the best forgone alternative. •A producer, who decides to transform all his leather to shoes, gives up the chance to produce bags with that leather. •A school teacher, who could have worked in the bank, gives up salary that she would earn as a bank employee.

Microeconomics

the study of the economic behavior and decision making of small units, such as individuals, families, and businesses It is concerned with the behaviour of individual entities such as the consumer, the producer, and the resource owner. It is also concerned with the process of setting prices of goods that is also known as Price Theory.

Absolute Scarcity

when supplies of a resource are completely limited or extinct