Economics: Introductory Study Guide
This guide covers key concepts from your "Intro to [Link]", "Econ [Link]", "Econ
Quiz 1.1 Answer [Link]", and "Victoria Missed Class [Link]" notes.
I. Core Concepts of Economics
● What is Economics?
○ A social science.
○ Involves no absolutes and is subjective.
○ The study of how we behave based on our wants.
○ It's about how individuals strive to maximize satisfaction through consumption
using their limited resources.
● Wants
○ Are unlimited and never-ending.
○ Represent a desire for satisfaction from goods or services.
○ Economics primarily focuses on wants rather than just needs.
● Needs
○ Basic necessities like food, clothes, and shelter.
○ Can be understood through frameworks like Maslow's hierarchy.
● Utility & Utiles
○ Utility: The measure of satisfaction you get from consuming a good or service.
You are always trying to maximize your satisfaction/utility.
○ Utiles: The unit of measure for satisfaction or utility. Everyone derives
satisfaction in different ways. You are unknowingly always assessing this.
II. Fundamental Economic Principles & Terms
● Scarcity
○ Exists because there are not enough resources for wants.
○ Derives from tension due to limited resources.
○ Is important because it forces us to make choices about how to use our
limited resources. We cannot have everything we want.
● Resources (Factors of Production)
○ Limited resources are what societies measure wealth by.
○ Interchangeable with the term "resources".
○ The 4 Factors of Production are:
1. Land: Everything that comes off the land, often a commodity (e.g., oil,
gems).
2. Labor: Human time, effort, and talent (TTE). It's the work we do.
3. Capital: Machines, tools, human capital, roads, parking. It's something
that makes you more productive (faster, better, cheaper).
4. Entrepreneurship: The effort of people to combine the other resources
(e.g., Starbucks coffee).
○ Human Capital is an investment in a human being to improve his/her skills to
become more productive (e.g., training workers).
● Goods & Services
○ Goods: Tangible objects that fulfill wants and make you feel better (e.g., a new
phone).
○ Services: Work that a person does for another, fulfilling wants and making you
feel better (e.g., a haircut).
○ We consume them to realize personal utility.
● Consumers & Producers
○ Consumers: Buy goods and services.
○ Producers: Make or provide goods and services.
● Money
○ A limited resource used to "transact".
○ Replaces the barter system.
○ Note: Resources are not always money.
● Incentives
○ A motivation or reason to do something.
○ "Something that gets you to change your behavior".
○ Benefits offered to encourage people to behave a different way.
III. Economic Decision-Making
● The 4 Big Questions (Arising from Scarcity)
○ Societies must answer these due to unlimited wants and limited resources.
Scarcity is the reason for these questions.
○ What will be produced? (Deciding which goods and services to make).
○ How will it be produced? (Choosing the best ways to create these things).
○ For whom will it be produced? (Determining who gets what is made).
○ How much of what for whom?.
● Economic Systems & Their Answers to the 4 Questions
○ Capitalism (Market System/Free Enterprise):
■ What: What people want and are willing to buy.
■ How: Drive, audio.
■ For Whom: Whoever is willing to buy it.
■ How Much: As much as people are willing to buy.
○ Socialism: Government controls some or all means of production.
○ Communism:
■ What: What the government wants.
■ How: Labor + low quality; low human capital.
■ For Whom: The government.
■ How Much: For leaders there is no limit; whatever is left for the people.
● Economizing
○ Getting the most satisfaction from resources.
○ Prioritizing.
○ Making a decision based on the best combination of cost and benefits.
○ Prioritizing within your budget to maximize utility. It involves assessing every
decision for perceived benefit/satisfaction.
● "No Free Lunch"
○ Every time you consume a good or service, you have diminished resources.
○ If you do one thing, there is always a cost because you gave up something
else to do that.
○ Resources are scarce, and directing them to one thing means giving up
something else.
● Trade-Offs
○ The alternative that you gave up to do something or consume a good/service.
○ It's about choices and maximizing satisfaction/utility.
○ Trade-offs don't have to be all or nothing.
● Opportunity Cost (Opportunity Lost / Next Best Alternative - NBA)
○ The value of the trade-off/NBA.
○ NOT all the other things you might have done, but ONLY the NEXT BEST
alternative that was sacrificed.
○ The value is often the lost utiles (utility).
● Cost-Benefit Analysis
○ A formal process of economizing.
○ Weighing alternatives to pick what gives you the most utility.
○ Involves considering resources ($), wants, and utiles, often visualized in a grid
format (e.g., for house renovations).
○ Trade-offs and snap decisions are more capricious than formal cost-benefit
analysis.
● Marginal Concepts
○ Marginal: Refers to the next unit of a widget (good or service).
○ Marginal Cost: For a consumer, it's the cost of using one more unit; for a
producer, it's the cost of creating one more unit.
○ Marginal Benefit: The benefit/satisfaction (utility) derived from using
(consuming) one more unit of a good or service.
○ Law of Diminishing Marginal Utility: Your first economic law. Every time you
consume one more of something, the additional utility you derive goes down.
(e.g., first slice of pizza gives more utility than the third). Producers may need to
lower prices to incentivize buying more due to this law.
○ Marginal costs increase as you are forced to make more of one thing, meaning
you give up more of other things.
IV. Specific Economic Models & Concepts
● Commodities (Note: "Things not in the book" that you are expected to know).
○ A class of goods.
○ Nearly always derived from the Land factor of production.
○ Supplied without qualitative differentiation (non-differentiable) within their
category.
○ There is no regard to who or where it was produced.
○ Pricing is based solely on supply and demand.
○ Examples: Arabic coffee beans vs. Colombian coffee beans, sour cream, sugar,
corn, oil, milk, wheat, cattle, pork bellies, canola oil, silver, gold, copper.
○ Exceptions: Semiconductors, Cryptocurrencies. Diamonds are also an
exception because they are differentiable by size/color/cut/clarity.
● Production Possibilities Curve (PPC)
○ A model that demonstrates the maximum number of goods and services that
can be produced in an economy based on its limited resources.
○ Shows the trade-offs when producing only two things (e.g., guns and butter).
○ Assumptions for the PPC model:
1. Resources are fixed (Land, Labor, Capital, Entrepreneurship cannot be
increased).
2. All resources are fully employed (no wasted factors of production, fully
efficient).
3. Only two things can be produced (simplifies the model for two axes).
4. Technology is fixed (no technological breakthroughs in
Entrepreneurship and Capital).
V. Review for Quizzes/Tests
● Quiz/Test Format: Often includes multiple choice, definitions, and application questions
(implied from quiz answer key and discussion of topics).
● Key Quiz/Test Topics Mentioned:
○ Chapter 1: Needs vs. Wants, What is Economics?.
○ Economic choice, economizing, opportunity costs, prioritizing.
○ Incentives, Utility, Utiles, Economizing.
○ No Free Lunch, Trade Off, Opportunity Cost/Lost/NBA.
○ Cost Benefit Analysis (formal economizing, remembering the grid).
○ Marginal Cost and Marginal Benefit.
○ Commodities (definitions, characteristics, examples, exceptions – "things not in
the book").
○ Production Possibilities Curve (PPC) (purpose, assumptions, examples).
○ The "Section 2" material will be on a quiz.
Here are just the questions from the study guide, without the answers:
Economics: Introductory Study Guide - Questions Only
This guide covers key concepts from your "Intro to [Link]", "Econ [Link]", "Econ
Quiz 1.1 Answer [Link]", and "Victoria Missed Class [Link]" notes.
I. Core Concepts of Economics
1. What is Economics?
2. What are "wants" in economics, and what are their key characteristics?
3. What are "needs" in economics?
4. Define "Utility" and "Utiles" and explain their significance.
II. Fundamental Economic Principles & Terms
5. What is scarcity, and why is it important in economics?
6. What are Resources (Factors of Production), and what are the four main types?
7. Differentiate between Goods and Services.
8. Who are Consumers and Producers?
9. What is the role of Money in an economy?
10.What are Incentives, and how do they relate to behavior?
III. Economic Decision-Making
11.What are the 4 Big Questions that arise from scarcity, and why must societies
answer them?
12.How do different economic systems (Capitalism, Socialism, Communism) answer
the 4 Big Questions?
13.What does it mean to "economize"?
14.Explain the concept of "No Free Lunch."
15.What are Trade-Offs?
16.Define Opportunity Cost (Opportunity Lost / Next Best Alternative - NBA).
17.What is Cost-Benefit Analysis, and how is it performed?
18.Explain the key Marginal Concepts: Marginal, Marginal Cost, Marginal Benefit, and
the Law of Diminishing Marginal Utility.
IV. Specific Economic Models & Concepts
19.What are Commodities, what are their characteristics, and can you provide
examples and exceptions?
20.What is the Production Possibilities Curve (PPC), and what are its key
assumptions?
V. Review for Quizzes/Tests
21.What is the typical format and what are the key topics for quizzes and tests in this
economics course?