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

Economic Terminology Utility = SATISFACTION Marginal = ADDITIONAL Allocate = DISTRIBUTE

What’s the price? vs. How much does it cost? Scarcity vs. Shortages Scarcity occurs at all times for all goods. Shortages occur when producers will not or cannot offer goods or services at current prices. Shortages are temporary. 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

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

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

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