Unit 1 - Production Possibility

Macroeconomics Vs. Microeconomics

Macroeconomics - Is the study of the major components of the economy.
     ex: Inflation, GDP, and international trade
Microeconomics - Is the study of how households and firms make decisions and how they interact in  markets.
     ex: Supply and demand and market structures

Positive economics Vs. Normative economics

Positive economics - Claims that attempt to describe the world is as is: very descriptive. (fact based)
     ex: minimum wage laws causes unemployment
Normative economics - claims that attempt to prescribe how the world should be: very prescriptive in nature. (opinion based)
     ex: The government should raise the minimum wage

Needs Vs. Wants

Needs - Basic requirements for survival Wants - Desires of citizens: broader needs.

Scarcity Vs. Shortage

Scarcity - the most fundamental economic problem facing all societies.
-satisfying unlimited wants with limited resources
-permanent
Shortage - Quantity demanded is greater than quantity supplied.
-Temporary

Goods Vs. Services

Goods - tangible commodities
Consumer goods - intended for final use by the consumer.
     ex: Car and Chocolate bar
Capital Goods - items used in the creation of other goods such as factory machinery and trucks.
Services - Worked that is performed for someone else

Factors of production - 
     1. Land - Natural resources
     2, Labor - Work force
     3. Capital -
Human Capital: Knowledge and skills gained though education and experience.
Physical Capital: Human made objects used to create other goods and services.
     4. Entrepreneurship -  Innovator and risk taker.

Trade offs - Alternatives that we give up whenever we choose one course of action over another.
Opportunity cost - The most desirable alternative given up by making a decision.
Production possibility graph - Shows alternative ways to use resources.
- Each point shows a trade off.

Point A - Efficient but producing more capital goods.
Point B - Efficient and attainable.
Point C - Efficient but producing more consumer goods. 
Point D - Under-utilization and attainable but inefficient.
(Inside) Can be caused by a decrease in population, recession, war, famine, underemployment, or unemployment.
Point E - Unattainable
(Outside) Can be caused by economic growth, technology, and new resources.

Productive efficiency - (any point on the curve) Producing at the lowest cost and allocating resources efficiently.
- Full employment of resources
Allocating efficiency - Where to produce on the curve.

Production Possibilities Graphs key assumptions:

1. Two goods are produced
2. Full employment
3. Fixed resources
4. Fixed state of technology
5. No international trade