Basic Economic Concept
Scarcity¶
Scarcity: limited resource \(\leftrightarrow\) unlimited wants
Resource: factors of production = input
- Land
- Labor
- Capital
- Entrepreneurship
Economy Forms¶
Property rights and protection of private property
- Market Economy
- Command Economy
Opportunity Cost¶
\(OC = \dfrac{quantity\ of\ goods\ or\ services\ forgone}{quantity\ of\ goods\ or\ services\ gain}\)
\(OC_x = \dfrac1{OC_y}\)
PPF Shift¶
Rightward shifters of PPF
- Increment in resource quantity / quality
- Improvement in productivity
- Improvement in technology
The Principle of Increasing Opportunity Cost¶
OC increases because resources aren't equally adaptable
Advantage¶
- Absolute Advantage: can produce goods and services in greater quantity for the same cost / less production cost
- Comparative Advantage: produce goods and services at a lower Opportunity Cost
Note
One producer can only have a Comparative Advantage on only 1 kind of goods
Comparative Advantage decides specialization
Principle of Diminishing Marginal Utility¶
Utility Maximizing Rule:
\(\dfrac{MU_1}{Price_1} = \dfrac{MU_2}{Price_2}\)