Basic Economic Concepts

Basic Economic Concepts

1. Wants

   • Human desires
   • Do not need to be backed up by purchasing power
   • Unlimited
   • When a want is satisfied, we develop other wants.

2. Resources

   • Limited in supply
   • Needed to produce goods and satisfy our wants

3. Scarcity

   • The amount of resources is insufficient to satisfy human wants
   • choice
     • Opportunity Cost (OC)
       • The highest-valued alternative forgone when making a choice
       • We always choose the option that involves the lowest OC
       • OC only changes when your highest-valued alternative forgone changes
       • OC remains unchanged when there is a change in the value of the chose option
       • =highest-valued alternative use of (money+time)
         • OC changes when there is a change in the price
           • $ is NOT the value of the chosen option --> what you pay, not a benefit received.
           • Increase of price= increase of OC
             • Sacrificing more alternative use of $
   • A universal problem

4. Goods

   • Economic Goods
     • Quantity available is insufficient to satisfy all our wants
     • OC is involved in obtaining it
     • More of it is preferred
   • Free Goods
     • Quantity available is sufficient to satisfy all our wants
     • No OC is incurred when obtaining it.
     • More of it is not preferred.
     • ie. sea water, air
   • *Goods that are free of charge may be economic goods/ free goods
     • Depends on whether scarce resources are required in obtaining the good, not on whether it is free of charge.