Fundamental Economic Concepts: Scarcity, Production, and Decision Making

Economics Defined

Economics is the science that studies how society uses its scarce resources available to produce goods and services and distribute them efficiently to meet people's needs.

Key Features of Economics

1. Social Science
2. Science of Scarcity
3. Science of Choice (Election)
4. Intended to meet needs

Branches of Economics

1. Positive Economics

Observes and analyzes current economic reality.

Economic Theory

Tries to create general laws explaining economic behavior:

• a) Macroeconomics (Aggregate study)
• b) Microeconomics (Individual study)

Applied Economics

Attempts to describe the past and present reality of a specific geographic environment (economic structure).

2. Normative Economics (Economic Legislation)

Tries to transform reality through ethical or ideological criteria (e.g., economic policy).

Social Sciences Related to Economics

All sciences that consider the human being are related to economics (Social Sciences):

1. Law (Derecho)
2. History
3. Philosophy
4. Sociology
5. Statistics and Mathematics (Experimental)

Fundamental Economic Decisions

1. What goods and services to produce (e.g., family, enterprise, government)?
2. How to produce (more or less efficient, with or without technology)?
3. For whom to produce?

Opportunity Cost

The value of the goods and services renounced to acquire others. This occurs because choices must be made.

Production Possibilities Frontier (PPF)

Represents the highest production of goods and services a society can obtain given the resources and technologies it possesses.

Economic Activity

The set of actions that produce goods and services to meet needs. Economic activity is divided into:

1. Production Activities (obtaining resources)
2. Distribution Activities (distribution)
3. Consumption Activities (meeting people's needs)

Classification of Goods Based on Satisfaction

Needs are satisfied with goods classified by:

1. Function:
   • a) Consumption Goods
   • b) Production Goods
2. Scarcity:
   • a) Economic Goods (Property)
   • b) Free Goods
3. Degree of Elaboration:
   • a) Intermediate Goods
   • b) Final Goods
4. Relation:
   • a) Complementary Goods
   • b) Substitute Goods
5. Usage:
   • a) Private Goods
   • b) Public Goods

Economic Agents (Operators)

These are the entities that choose what to do with goods and services:

1. Families: Make consumption decisions (Demand).
2. Firms (Companies): Decide how to produce goods (Supply).
3. Public Sector (Government): Produces and consumes, satisfying general needs.