The Basics of Economics

1. Macroeconomics vs. Microeconomics

• Macroeconomics: Study of the entire economy, covers its ups and downs.
• Ex. GDP, inflation, unemployment
• Think of it as the big picture.

• Microeconomics: Study of the parts of economy, how people make their decisions and how their decisions interact.
• Ex. Supply and demand, market structures
• Think of it as the details of the big picture.

2. Positive vs. Normative Economics

• Positive: Describes the ways the economy works. It is based on fact.
• Ex. Minimum wage laws cause unemployment

• Normative: Describes how the economy should work. It is based on opinion.
• Ex. Gas prices are too high

3. Needs vs. Wants (This is Pretty Self-Explanatory, Isn't It?)

• Needs: Something that is necessary for survival, like food, water and shelter. 
• Wants: Something that you beg your parents for even though you don't really need it, such as that new phone or maybe a pet snake.

4. Scarcity vs. Shortage

• Scarcity: The most fundamental economic problem that all societies face.
• Trying to satisfy unlimited demand with limited resources.
• It is permanent.

• Shortage: Where the quantity demanded is greater than the quantity supplied.
• It is temporary.

5. Goods vs. Services

• Goods: Tangible items you can buy.
• Consumer Goods vs. Capital Goods
• Consumer: Items intended for final use by the consumer.
• Capital: Items used in the creation of other goods.

• Services: Work performed for someone else

6. Four Factors of Production

• Land: Natural resources
• Labor: Work force
• Capital: Human vs. Physical
• Human: Any knowledge/skills gained through education or experience
• Physical: Human-made objects used to create other goods or services
• Entrepreneurship: Innovative risk-taker

7. Important Terms

• Trade-Offs: Alternatives that we give up when we choose one course of action over another. 
• Opportunity Cost: A type of trade-off, wherein the most desirable alternative must be given up when making a decision
• "Guns or Butter": Think of this in literal terms - is the government spending money on the military, or agriculture? How are we allocating our resources?