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Basic Concepts in Economics
Fundamental Economic Concepts
1. Scarcity and Choice – Scarcity is the universal problem that faces all societies because there are not enough resources to produce everything people want. Scarcity requires people to make choices about the goods and services they use. 2. Opportunity Cost and Trade-Offs – Opportunity cost is the foregone benefit of the next best alternative when scarce resources are used for one purpose rather than another. Trade-offs involve choosing less of one thing to get more of something else. 3. Productivity – Productivity is a measure of the amount of output (goods and services) produced per unit of input (productive resources) used. 4. Economic Systems – Economic systems are the ways in which people organize economic life to deal with basic economic problem of scarcity. 5. Economic Institutions and Incentives – Economic institutions include households and families and formal organizations such as corporations, government agencies, banks, labor unions, and cooperatives. Incentives are factors that motivate and influence human behavior. 6. Exchange, Money, and Interdependence – Exchange is a voluntary transaction between buyers and sellers. It is the trading of a good or service for another good or service, or for money. Money is anything that is generally accepted as final payment for goods and services, and thus serves as a medium of exchange. Interdependence means that decisions or events in one part of the world or in one sector of the economy affect decisions and events in other parts of the world or sectors of the economy. Microeconomic Concepts

7. Markets and Prices – Markets are arrangements that enable buyers and sellers to exchange goods and services. Prices are the amounts of money that people pay for a unit of a particular good or service. 8. Supply and Demand – Supply is defined as the different quantities of a resource, good, or service that will be offered for sale at...
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