Economics Key Concepts: Opportunity Cost, Needs, and Production
Topic 1: Core Economic Concepts
1. Opportunity Cost
The benefit of the next best alternative foregone.
2. Need
Something essential or very important, rather than just a desire.
3. Types of Needs
- Basic: Essential for survival.
- Secondary: Desires or wants.
- Present: Felt immediately.
- Future: Needed for later use.
- Recurrent: Needed frequently (e.g., daily).
- Occasional: Needed sometimes.
4. Good
A physical or tangible item that satisfies a human want or need.
5. Types of Goods
- Tangible: Can be touched and seen.
- Intangible:
Key Economic Principles: GDP, Inflation, and Policy Tools
Fundamental Economic Concepts
Defining Economics
Economics is a social science studying the allocation of scarce resources.
Positive vs. Normative Economics
- Positive Economics: Deals with facts and objective analysis (what is).
- Normative Economics: Involves value judgments and opinions (what ought to be).
Core Principles
- Scarcity: Resources are limited, implying that nothing is truly free.
- Purposeful Behavior: Individuals and institutions make rational decisions based on self-interest to maximize utility
Economic Agents: Consumers, Families, Companies, and Public Sector
Consumers and Families
Consumers decide which goods and services best meet their needs. Rationalization criteria influence these decisions:
- Preferences: Choices are made from two or more options with equal features and services that meet the same need.
- Level of Income: Income conditions the cost.
Consumers provide factors of production to companies in exchange for rent.
Income: The value or price paid for the use of a productive resource in a given period. Income has three sources:
From production factors:
Read MoreMarket Failures: Competition, Externalities, and Public Sector
Failure of Monopoly and Competition
Another argument that justifies public sector intervention in the economy is the warranty of competition. Markets can only allocate resources efficiently when buyers and sellers act in perfect competition. This means many suppliers and consumers produce and consume the same good, and, more importantly, none of them have special control over the price. When the market deviates from perfect competition, there is a failure in competition.
Factors Limiting Competition
Many
Read MorePublic Budget, Economic Cycles, and Fiscal Policy
The Public Budget and the Economic Cycle
The budget is related to the different phases of the economic cycle. However, the opinion on this relationship differs according to the school of economic thought.
Monetarist View
Monetarists believe that the economy has mechanisms to correct all imbalances without state intervention. Therefore, public spending should be limited as much as possible, and the budget should remain balanced annually; expenditures must match revenues.
Keynesian View
According to Keynesian
Read MoreUnderstanding Fiscal Federalism: Functions and Financing
Fiscal Federalism
Local finance deals with the interrelationship between various government units and substations of the internal problems of each. The first objective is the study of relations between the various levels of hacienda. It is necessary to delimit the different levels of public finances, in terms of hierarchy and in terms of choice and delimitation of the units and assign to each its appropriate powers and limitations on their income and expenditures.
Assigned Function
Goods and services
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