Homework Review

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Homework Review
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Introduction to Economics

• Fundamental problem of economicsscarcity
  (unlimited wantslimited resources)
• 3 Basic questions What to produce? How? For
  whom?
• Positive statementsbased upon testable theories
• Normative statements value judgments, based upon
  opinion.

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Introduction to Economics

• Microeconomics focuses on individual markets,
  individual consumer decisions, individual firms,
  individual households, individual markets,
  individual costs, specific prices
• Macroeconomics focuses on the economy as a whole
  aggregates, all markets, all consumers, all prices

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Factors of Production

• Input-----Production process-----output
• 4 factors of production for input. Things needed
  to make something (inputs)
• 1.Land (all natural resources, includes oceans,
  rivers, minerals) Only thing not scarce is air
  (free good)
• 2. Labor-human resources employed in the
  production process
• 3.Capital- machines,roads, computers, factories,
  items used by human resources to make something.
  They allow for future production of goods and
  services (output)
• 4.Entrepreneur- individuals or group who risk
  combining the other factors.

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Types of Production

• Capital intensive- uses relatively high amount of
  capital compared to other factors of production.
• Labor intensiveuses relatively high amount of
  labor relative to the other factors.

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Sectors in the economy

• Private sectorresources owned by private
  individuals
• Public sectorresources owned by the government
• Primary sectorextractive raw materials (e.g.
  fishing, oil, forestry)
• Secondary/Manufacturing sectorconverts materials
  into goods
• Tertiary/service sectorfinance, tourism.

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Types of economy

• Free market----mixed-----command/planned
• Free market enterprise (allocation (who gets) of
  goods and services left to market forces of
  demand and supply.) Pure capitalism.
• Mixed economy (some of the decisions What?How?For
  whom? are made by government, some made by the
  market)
• Command/Planned(government decides What to
  produce? How to produce? For Whom?)
• Traditional Economies (based on religious and
  other customary rituals-Theocracyusually are
  strongly planned economies)

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Types of Goods

• Capital goods/producer goods things that are
  used to make other things( anything not bought
  for final consumption)
• Consumption goods things that are bought for
  final consumption (washing machines, videos,
  consumer durables, food
• Free goods- involve no opportunity cost (choice)