The Foundation of Economics

factors of prooduction

• land
  • refers to all natural resources.
    • rent
• labor
  • physical + mental efforts by human, contribute to the production of goods or services
    • wage
• capital
  • refers to human-made resources which are productive(produce more goods, etc)
    • interest
• enterprise
  • type of labor, organizes other FOPs and take risks, innovate by developling new ways of doing things
    • profit

opportunity cost

• refers to the value of the next best alternative forgone when making a particular decision

types of goods

• economic good
  • is any good that is scarce, either because it is a naturally scarce resource, or because it’s produced by scarce resource.
  • has opportunity cost
• free good
  • are naturally abundant with unlimited supply, thus does not incur any opportunity costs.
  • no factors of production are required to produce free goods

circular flow of income

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• injection
  • additional money added to the circular flow of income
• leakage
  • withdrawl from the circular flow of income

Production Possibility Curve(PPC)

• a model which illustrates the different combinations of two goods or services that an economy or firm can produce. Shows opportunity costs.

• 

• assumptions of PPC

  • there’s a fixed amount of resources
  • only two goods are being produced
  • technology and production technique are fixed
  • all resources are used efficiently

• 

• determinants of PPC

  Summary: causing shift(outward or inward) of the PPC

  • quantity of factors of production
  • quality of factors of production
  • technology level

• actual growth and potential growth

  • 

  • can produce more of both goods, increasing production possibilities

    

trade off

• due to the scarcity of resources, refers to the alternative that must be sacrificed when a particular option is chosen.