the study of how people seek to satisfy needs & wants by making choices
why do choices have to be made?
- scarcity of resources- is the basis of economics
- basic economic problems- leads to shortage of goods & services
- scarcity- permanent problem we face w "factors of production"
- shortage- temporary situation, can find new/recover "factors of production"
- land- materials found in nature
- labor- effort someone devotes to a task & they're paid
- capital- human made resources used to produce other goods or services
-physical capital: good that helps produce other goods or services
-technology: advances in process to make a good or service
- entrepreneur(ship)- people who take risks to combine land, labor, & capital to create new goods/services
all choices given when choice is make
the best or most valued alternative that is given up when choice is made
production possibility frontier: combination of goods produced utilized to full potential
in the face of scarcity, countries use:
- development of cheaper or substitute resources
- specialization of labor
- mass production
- economic efficiency- maximize resources
- economic freedom- get to choose profession, what to buy, etc.
- economic security- predictability
- economic equity- fair distribution of wealth
- economic growth- improve level of prosperity
- full employment- provide jobs
no government interaction in economy
money flows from firms to households
businesses purchase factors of production (raw materials) to make finished products
households sell factors of production for income
money flows from households to firms for finished goods
businesses sell goods & services for a set price
individuals in households purchase goods & services
government plays an active role in economy