Colander (2010) stated, “Economics is the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society” (p. 4). The main word defining “economics” would be coordination, and in economics, refers to three central problems that face any economy and how they are solved. These central problems are
1. What and how much to produce.
2. How to produce it.
3. For whom to produce it (Colander, 2010).
Individuals frequently assume that economics only concern is with business, money, and supply, and demand. However, economics began as a branch of philosophy, and Alfred Marshall, the 19th century economist describes economics as the study of individuals in the business of everyday life.
Colander (2010) stated “scarcity has two elements: our wants and our means of fulfilling those wants. These can be interrelated since wants are changeable and partially determined by society” (p. 5). Scarcity is a basic problem of economics it has apparent limitless individual wants and needs when the world in fact has limited resources. We as a society have scarce creative resources to fulfill everyone’s wants and needs.
Colander (2010) states TANSTAAFL “economic knowledge in one sentence “There ain’t no such thing as a free lunch” (p. 7). This acronym is trying to illustrate the cost of spending and decision making, and expresses that there is always a cost whether hidden or indirect even if it may seem like it is free.
* Opportunity Cost
Colander (2010) states “Opportunity cost is the benefit that you might have gained from choosing the next-best alternative. To obtain the benefit of something, you must give up something else. TANSTAAFL theory embodies the opportunity cost concept because it tells us that there is a cost to everything; that cost is the next-best forgone alternative” (p. 9). In economics, the term “opportunity cost” refers to money or benefits lost or given up pursuing a particular path specific path of action instead of an alternative or something else. Almost every decision made in business has an opportunity cost attached to it. For example should a business continue using a particular piece of equipment, or should the business purchase new equipment with additional features, and pay a higher rate.
* Production Possibilities Curve
Colander (2010) states the definition as “The production possibility curve is a curve that measures the maximum combination of outputs that can be obtained with a given number of inputs” (p. 29). The “Production Possibility Curve” is a graph representing the difference in rate when two products are produced with only a specific quantity of resources. For example, Suzie will bake brownies and cookies, but she has only one oven. An area in the oven used for baking brownies is not necessarily used for the cookies; therefore, for each brownie baked there are fewer baked cookies.
* Comparative Advantage
Colander (2010) states the definition as “some resources have a comparative advantage over other resources— the ability to be better suited to the production of one good than to the production of another good” (p. 28-29). Comparative advantage is the capability to manufacture services or merchandise at an opportunity cost lower than other individuals or businesses giving the individuals or businesses the capability of selling their services or merchandise at lower pricing than their competitors price.
* Business Cycle
Colander (2010) states the definition, as “a business cycle is the upward or downward movement of economic activity that occurs around the growth trend” (p. 158). Business cycles refer to economic fluctuations in trade, production, and economic activity in over several months or years. Economic fluctuations take place throughout long-term growth trends, involving shifts over time showing fast economic growth, and periods of decline.
Colander (2010) states the definition, as “the consumer price index (CPI) is an index of inflation measuring prices of a fixed basket of consumer goods, weighted according to each component’s share of an average consumer’s expenditures” (p. 171). The CPI or consumer price index is a measurement showing household purchases indicating the change in the price levels of services and consumer goods. The CPI calculates the price changes for each predetermined item in the “basket of goods” and averages them, and weighted by their importance with the price changes related to the cost of living.
* Labor Force
To define labor force or workforce, and this is the calculation of every adult whether employed or unemployed. Estimated by The Bureau of Labor Statistics labor is categorized by employed, unemployed or not in the labor force for individuals age 16 and over. Individuals not categorized into the labor force are students, retired, or institutionalized individuals. The labor force changes over periods because of social and demographic changes.
* Transfer Payments
Colander (2010) states the definition, as “payments to individuals that do not involve production by those individuals. Transfer payments include Social Security payments, and unemployment insurance” (p. 184).
Transfer payments are monies from the government given to individuals such payments include unemployment, social security, disability, and other welfare payments.
Business cycle. (2013). In Merriam-Webster. Retrieved from http://www.merriam-webster.com/dictionary/business cycle Comparative advantage. (2013). In Merriam-Webster. Retrieved from http://www.merriam-webster.com/dictionary/comparative advantage Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin. (pg. 4, 5, 7, 9, 28-29, 158, 171, 184). Economics. (2013). In Merriam-Webster. Retrieved from http://www.merriam-webster.com/dictionary/economics
Opportunity cost. (2013). In Merriam-Webster. Retrieved from http://www.merriam-webster.com/dictionary/opportunity cost Scarcity. (2013). In Merriam-Webster. Retrieved from http://www.merriam-webster.com/dictionary/scarcity