Microeconomics Concepts

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Scarcity

Back

Scarcity is the fundamental problem in economics, referring to limited resources (like land, labor, and capital) versus unlimited human wants and needs.

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Needs vs. Wants

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Needs are essential items for survival, such as food, water, and shelter. Wants are non-essential items that improve comfort or pleasure, like a smartphone or new clothes.

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Goods and Services

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Goods are tangible, physical products like food, clothing, and cars. Services are intangible actions or activities one performs for others, such as teaching or providing healthcare.

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Consumers vs. Producers

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Consumers are people who buy and use goods and services. Producers are individuals or companies that make goods or provide services.

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The Three Basic Economic Questions

Back

1. What to produce? 2. How to produce? 3. For whom to produce?

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Opportunity Cost

Back

The cost of the next best alternative given up when making a decision.

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Production Possibilities Curve (PPC)

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A graph illustrating the trade-offs between two goods that a society can produce with limited resources.

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Comparative Advantage vs. Absolute Advantage

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Absolute Advantage is when one person or country can produce more of a good or service with the same amount of resources than others. Comparative Advantage is when one person or country has a lower opportunity cost for producing a good than others.

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Market Economy

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In a market economy, decisions about what to produce, how to produce it, and for whom are determined by market forces—supply and demand—with minimal government intervention.

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Command Economy

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The government controls all major decisions about production, distribution, and consumption.