Production Possibilities

Macroeconomics and Microeconomics:

Macroeconomics - study of entire economy which covers the ups and downs of the economy (GDP, Inflation, unemployment)

Microeconomics - study of parts of the economy in which people make decisions and how those decisions interact (supply and demand, market structure)

Positive and Normative:

Positive Economics - describes the way that the economy actually works (minimum wage laws cause unemployment) facts

Normative Economics - describes the way economics should work (price of gasoline is too high) opinions 

Needs and Wants:

Needs - basic requirement for survival

Wants - desires as citizens

Scarcity and Shortage:

Scarcity - (permanent) most fundamental economic problem that all society face (trying to satisfy unlimited wants with limited resources)

Shortage - (temporary) quantity demanded is greater than quantity supplied

Goods and Services:

Goods - tangible commodities

1. Consumer Goods - goods that are intended for final use by consumers
2. Capital Goods - goods that are used in the creation of other goods

Services - work that is performed for someone else

Factors of Production:

Usage of Resources: 

Trade - offs - alternatives that we give up when we choose one course of action over another

Opportunity costs - most desirable alternative giving up by making a decision

"Guns or Butter"- How are we alleviating our resources (Military or Agriculture)

Production Possibility Graph - shows alternative ways to use resources

Production Possibilities Graph - Key Assumptions 

1. Two goods are produced
2. Full employment
3. Fixed resources (land. labor, capital)
4. Fixed state of technology
5. No international trade

Points on the Graph

A - underutilized, is attainable but inefficient

B - efficient but produces more guns

C - efficient but produces more butter

D - efficient and attainable (ideal economics)

X - efficient but unattainable (usually during war or famine)