Basic economics

concepts
Basic economics concepts
1. Definition of Economics:

o Economics is the study of how individuals, businesses, governments, and societies make
choices about allocating scarce resources to satisfy their unlimited wants and needs.

2. Scarcity:

o Scarcity means that resources (time, money, labor, land, etc.) are limited, but human wants
are unlimited. This fundamental problem forces individuals and societies to make choices.
Basic economics concepts
3. Opportunity Cost:

o Opportunity cost is the value of the following best alternative forgone when deciding. It
represents the benefits you could have received by taking an alternative action.

4. Supply and Demand:

o Demand: The quantity of a good or service that consumers can purchase at various prices.

o Supply: The quantity of a good or service that producers can sell at various prices.

o Equilibrium: The point where the quantity demanded equals the quantity supplied.
Basic economics concepts
5. Market Structures:

o Perfect Competition: Many firms have identical products and no barriers to entry.

o Monopoly: A single firm controls the entire market, unique products, and high barriers to
entry.

o Oligopoly: Few firms, products may be similar or different, significant barriers to entry.

o Monopolistic Competition: Many firms have differentiated products and low barriers to entry.
Basic economics concepts
6. Elasticity:

o Price Elasticity of Demand: Measures how much the quantity demanded of a good responds
to a change in its price.

o Price Elasticity of Supply: Measures how much of a good's quantity is supplied and responds
to a change in its price.

o Income Elasticity of Demand: Measures how much the quantity demanded of a good
responds to a change in consumers' income.
Basic economics concepts
5. Market Structures:

o Perfect Competition: Many firms have identical products and no barriers to entry.

o Monopoly: A single firm controls the entire market, unique products, and high barriers to
entry.

o Oligopoly: Few firms, products may be similar or different, significant barriers to entry.

o Monopolistic Competition: Many firms have differentiated products and low barriers to entry.
Basic economics concepts
7. Production and Costs:

o Production Function: Relationship between inputs (labor, capital, etc.) and output.

o Costs of Production: Fixed costs (do not change with output) and variable costs (change with
output).

8. Gross Domestic Product (GDP):

o The total value of all final goods and services produced within a country in a specific period.
It can be measured using production (output), income, or expenditure approaches.
Basic economics concepts
9. Inflation:

o The rate at which the general level of prices for goods and services rises, eroding purchasing
power.

10. Unemployment:

• The percentage of the jobless labor force and actively seeking employment.

11. Fiscal Policy:

• Government policies regarding taxation and spending to influence the economy.

Basic economics concepts
12. Monetary Policy:

• Central bank policies that influence money supply and interest rates to control inflation and
stabilize the currency.

13. International Trade:

• Exchange of goods and services between countries. Concepts

Basic economics concepts
4. Supply and Demand:

o Demand: The quantity of a good or service that consumers can purchase at various prices.

o Supply: The quantity of a good or service that producers can sell at various prices.

o Equilibrium: The point where the quantity demanded equals the quantity supplied.
Basic economics concepts
14. Economic Growth:

• An increase in the output of goods and services in an economy over time. The growth rate of
real GDP usually measures it.

15. Development Economics:

• Study how low-income countries can improve their economic conditions and living
standards.
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