Dr. Gary Stone

Winthrop University

BASIC ECONOMIC CONCEPTS

1. Economics is a social science dealing with how best to allocate scarce resources to

satisfy unlimited wants. It can also be described as the science of decision-making in the face of scarcity.

2. There are two divisions of economics:

Microeconomics deals with individual decision-making units such as a firm or a household. Examples of microeconomic topics include determining the price a business should charge for its product to maximize its total profit, and how many hours a person would want to work at a given wage rate.

Macroeconomics deals with broad economic aggregates rather than individual units. Examples of macroeconomic topics include measuring the rate of inflation in the economy and understanding how changes in government taxing affect the unemployment rate.

3. Economists recognize two approaches to an issue.

The positive approach is objective and does not contain value judgments. This

approach deals with the way things are. A positive statement can be tested to see

if it is true. An example of a positive statement is, “Men and women receive equal

salaries for equal work.”

The normative approach is subjective and does contain value judgments. This

approach deals with the way a person feels things should be. Such a statement

cannot be tested. An example is, “Men and women should receive equal salaries

for equal work.”

4. The key economic problem is scarcity of resources. There simply are not enough

resources available to satisfy everyone’s wants.

5. There are four categories of resources (things used to produce goods and services).

A. labor – number and quality of workers

B. land - natural resources (dirt, water, oil ,minerals, air)

C. capital – tools and factories (not “money”)

D. entrepreneurship – the abilities of those willing to take risks to develop new

products or production techniques

6. Because of scarcity, choices must be made. The opportunity cost of choosing a

particular action is the highest valued alternative to that action. When you spend $20 on a meal, the opportunity cost of the meal is your next best use of that $20 (perhaps clothing or books).