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CH 1 Principle of Economics - Coggle Diagram
CH 1 Principle of Economics
Definition of Economics
Concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human materials wants.
Human wants are unlimited, but the means to satisfy the wants are limited. Thus, economics is the study of the use of scarce resource to satisfy unlimited human wants.
Types of goods
Economic goods
Also known as scarce good, so that human effort is required to obtain it.
An economic good is a physical object or service that has value to people and can be sold in the marketplace.
Free goods
Item of consumption that is useful to people, is naturally in abundant supply and is free for everyone. Example: air, sunlight
Economic Bads
Item is said to be an economic bad if people are willing to pay to avoid the item which with a negative value to the consumer. Examples: pollution, illness
Opportunity costs/Tradeoffs
Since there are not enough available resources to satisfy the wants of individuals, so it forces them must made choice among available alternatives.
The opportunity cost defined as the cost of not selecting the ‘next best’ item.
Decisions require comparing costs and benefits of alternatives. The opportunity cost of an item is what you give up to obtain that item.
Factors of Production
Land
Labor
Capital
Enterprenuership
Five basic questions
What goods and services should be produced?
How many units of goods or services should be produced?
How should those goods and services be produced?
When should the goods or services be produced?
How should those goods or services be distributed among the members of society?