Basic Economics 13th Edition Frank V. Mastrianna © 2003 South-Western College Publishing Company.
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Transcript of Basic Economics 13th Edition Frank V. Mastrianna © 2003 South-Western College Publishing Company.
Basic Economics13th Edition
Frank V. Mastrianna
© 2003 South-Western College Publishing Company
Chapter 1
The Nature and Scope of Economics
3
Economics Defined
How people and institutions make choices
How the choices determine how resources are used
4
Economics as a Science
Organized body of knowledge
Coordinated, arranged, and systematized according to general laws and principles
Social scienceStudy of the behavior and interactions of
human beings as individuals and in groups
5
Economic Theory and Policy
Economic TheoryEconomic TheoryDevelops rules and principlesGuide for action under a given set of circumstances
Economic PolicyEconomic PolicyWhat is actually done under a given set of
circumstancesPolitical, military, and social aspects
6
Production
ProductionProductionCreation or addition of utility
UtilityUtility ability of a good or service to satisfy a want
Total ProductTotal Product sum of all goods and services produced by an economy over a given period of time
7
Distribution DistributionDistribution
Allocation of the total product among productive resources
Monetarily distribution of money incomes among the owners of the productive resources
8
Productive Resources
Inputs or resources necessary before a person or business can engage in the production of a good or serviceLaborLabor time and effort expended by human beings
involved in the production processLandLand the resources of the land, sea, and airCapitalCapital goods used to produce other goods and
servicesEnterpriseEnterprise act of organizing and assuming the
risk of a business ventureEntrepreneurEntrepreneur person who organizes and assumes risks
9
Functional Distribution of Income
RESOURCES
Labor
Land
Capital
Enterprise
TYPES OF PAYMENT
Wages
Rent
Interest
Profits
TOTAL PRODUCT
10
Positive and Normative Economics
Positive economicsPositive economicsEconomics of what isRelationships that are verifiable
Normative economicsNormative economicsEconomics of what ought to beCombines economics and politics and policy
11
Consumption
Use of a good or service
Ultimate end of economic activity
Production and distribution driven by consumption desires
12
Goods and Services
Free good Consumer goods
Capital goodsPublic good
13
Economic Good
Object or service UtilityScarceTransferable
ScarcityScarcityNot a sufficient amount available to meet everyone’s
wantsPrice has to be paid to obtain the good or serviceGreater the scarcity, the greater the value or price
14
Free Goods and Public Goods
Free GoodFree GoodGood that lacks the element of scarcity no price
Public GoodPublic GoodEconomic good to the supplierFree to the userPublic parks, libraries, and the interstate highway
system
15
Consumer and Capital Goods
Consumer GoodsConsumer GoodsGoods that are directly used by the consuming
publicBooks, paper, food, clothing
Capital goodsCapital goodsGoods used to produce other consumer or capital
goodsBuildings, machinery, equipmentDurable and non-durable
16
Wealth and Income
WealthWealthValue of things at a particular time
Human capitalHuman capitalthe stock of labor talents and skills used to increase
productivity
Total incomeTotal incomethe total value of the goods and services produced
over a period of time (usually 1 year)
17
Micro and Macroeconomics
Microeconomics: deals with the economic problems of the individual, the firm, and the industry
Macroeconomics: deals with the aggregates of economics - total production, total employment, and general price level