Unit One- Basic Economics Concept {1/18/18} page 2

Positive Economics vs. Normative Economics

• Positive Economics: Claims that attempt to describe the world as it is. 
• Descriptive in nature.
• Fact based.
• Examples include: minimum wage laws causing unemployment.
• Normative Economics- Claims that attempt to prescribe how the world should be. 
• Opinion based.
• Examples include: government should raise minimum wage 

• Wants: Desire of citizens
• Needs: basic requirements for survival
• Shortage- temporary, quantity demand is greater than quality supplied. 
• Surplus- Quantity supply is greater than quantity demanded. 
• P^ QD> QS scarcity
• Pv  QS>QD shortage surplus

Factors of production (4) 

1.  Land: Natural resources
2. Labor: Work exerted
3. Capital (2): 
1. Human capital- knowledge/skills that a worker gains through education and experience.
2. Physical Capital- human made objects used to create other objects. An example would be machinery, tools, etc
4. Entrepreneurship:innovative and risk taker

Production Possibilities Graph (PPG, PPC) 

(as could be known as "PPF= Production possibilities frontier")

• Alternate ways to use resources, each point on the graph reflects a trade off.
• It also shows the most that society can produce if it uses every available resource to do the best of it's abilities.
• Production possibilities curve illustrates the basic principle that if all resources in an economy in use, more of one good can be produced only if less of another is produced.  

• Law of increasing opportunity cost- as you produce more of one good, the opportunity cost (forgone) production of another good will increase.

• Key Assumptions:

1. Full employment- NOTS = THEY LAZY, THEY RETIRE, & DISABLED PEOPLE
• 80- 90% factor capacity
• 4-5% unemployment
2. Productive Efficiency- 
3. Fixed Resources (3)- Land, Labor, and Capital.
4. Fixed state of technology.
5. No international trade
6. two goods produced

• This bullet point talks about the points on the graph ABC.
• Point A- Inside the curve. Attainable, but inefficient. Under utilization. 
• Due to underemployment, war, famine, depress/recession   
• Point B- On the curve. Attainable and efficient.
• Point C- Outside the curve. Unattainable. 
• Due to technology and economic growth. 

Concave vs. Constant PPG 

• Concave means bowed out ( curve line down )
• Constant PPG- means the same ^ ( straight line down)

Production efficiency vs. Allocative efficiency 

• Production Efficiency- products are being produced in the least costly way.
• Allocative Efficiency- the products being produced are the ones most desired by society.