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2. Unit 1: Basic Economic Concepts “Econ, Econ” Econ 2

3. Economic Terminology Utility = Marginal = SATISFACTION ADDITIONAL Allocate =DISTRIBUTE 3

4. Scarcity vs. Shortages Shortages occur when producers will not or cannot offer goods or services at current prices. Shortages are temporary. Scarcity occurs at all times for all goods. Price vs. Cost What’s the price? vs. How much does it cost? Price= Amount buyer (or consumer) pays Cost= Amount seller pays to produce a good Investment Investment= the money spent by BUSINESSES to improve their production Ex: $1,000 new computer, $1 Million new factory 4

5. 5 Goods vs. Services GoodsServices Physical objects that satisfy needs and wants Actions or activities that one person performs for another Consumer GoodsCapital Goods Created for direct consumption Eg. pizza, toilet paper Created for indirect consumption; used to make consumer goods Eg. oven, knives, blenders Eg. teaching, cleaning, cooking

6.  Cost  6 AccountantsEconomists Only look at EXPLICIT COSTS Look at the EXPLICIT COSTS and the IMPLICIT COSTS Explicit costs are the traditional “out-of pocket costs” of decision making. Implicit costs are the opportunity costs such as forgone time and forgone income. Going to DisneylandPeyton Manning leaves the NFL to open a taco shop.

7. Profit 7 Economic ProfitNormal Profit The total revenue minus the total opportunity cost. is often called the break- even point. Similar to accounting profit but smaller because it reflects the total opportunity costs (both explicit and implicit) It is the profit where all the costs of your business, including the salary of the CEO, are covered.

8. Types of Economic Systems Traditional Command Market Allocate of Resources based on Cultural tradition Economic roles are established Stagnation & lack of development Central Authority makes economic decisions Capable of dramatic change in a short time Has little flexibility to deal with small things No room for individuality Consumers & businesses make economic decisions Creativity is valued Change takes a while

9. Full Employment Getting as many people to work as possible Economic Growth People want their wealth to increase Economic Goals Economic Security Avoid recessions & depressions  Social security Price Stability Inflation Control