IntroductionKanako Nakagawa

Microeconomic

Microeconomic: the study of the behavior of individual markets

Scarcity

Scarcity: choices that has to be made. Exists because there are limited availability of economic resources relative to society’s unlimited demand for goods and services.

Factors of Production

Land: physical factor of production. Includes natural resources, which can be both renewable and non-renewable.

Labor: the human factor of production. Includes physical and mental contribution of the existing workforce of production.

Capital: the factor of production that is made by humans to produce goods and services. Occurs as a result of investment.

Entrepreneurship; factor of production involving the organization of other factors of production which includes risk-taking.

Opportunity Cost

Opportunity cost: the next best alternative foregone when an economic decision is made.

Free goods

Free goods: goods which are unlimited in supply and has no opportunity costs. Has unlimited supply at market price zero. Economic good: good or service that is relatively scarce

and has a price. Involves opportunity cost when it is consumed.

Utility

Utility: satisfaction or pleasure that an individual derives from the consumption of a good or service.

Production Possibilities Curve

PPC: shows the maximum combination of goods or services that can be produced by an economy in a given time period, if all the resources in the economy are being used fully and effectively.

Output

Actual output: the production of goods and services in an economy achieved in a given time period. Potential output: the possible production that would be

achieved in an economy if all available factors were employed.

Growth

Actual growth: occurs when previously unemployed factors of production are brought into use. Potential growth: occurs when the quantity and/or quality

of factors of production within an economy is increased. Economic growth: the growth of real output in an

economy over time.

Development

Economic development: a broad concept that involves improvement in standards of living, reduction in poverty, improved health and improved education. Sustainable development: economic development that

meets the needs of the present without compromising the ability of future generations to meet their needs.

Efficient PPC

A

All resources are used efficiently.

Good A

Good B0

Unefficient PPC

B

Good A

Good B

Resources aren’t efficiently used.

0

Economic Growth

B

Good A

Good B

C

Actual economic growth

0

Shift of Production

AGood A

Good B

B

Shift of production from Good A to Good B

0

Economic Development

A

Goods

Hospitals

B

Shift of production to public and merit goods

0

Economic Growth & Development

Capit

al G

oods

Consumer Goods

Potential growth is achieved by changes in the quantity and/or quality of the factors of production

0

Economy

Free market economy: an economy where the means of production are privately held by individuals and firms. Demand and supply determine what to produce, how to produce it and for whom to produce. A planned (command) economy: an economy where the

means of production are owned by the state. The state determines what to produce, how to produce it and for whom to produce.

Transition economy: and economy in the process of moving from a centrally planned economic system towards a more market-oriented economic system.