Introduction to Economics

Economics is a social science, which wants to answer the question about allocation of scarce resources in the most effective way. It analyzes the production, distribution and consumption. Economics can be studied at different levels and we can consider two fields of it - microeconomics and macroeconomics. Microeconomics are for example the decisions made by individuals, households and firms, economics on a small scale. Macroeconomics is the study of issues that affects influences economies as a whole.


The basic economic problem is that resources are scarce and wants are unlimited. The resources are known as factors of production, which are available in an economy for the production of goods and services. These are divided into four main types. 
Land, which is a natural resource and includes everything connected with it - coal, sand, sea, sun etc.
Labour - human resource, which quality and quantity are important for economic progress.
Capital are the man- made aids to production, it covers a wide range of items such as factories and infrastructure.
Entrepreneur - human capital; someone who takes risks of the business and organizes production of goods and services. 


There are three fundamental economic concepts: scarcity, choice and opportunity cost.
Scarcity is a situation where there are not enough resources to meet all wants. Opportunity cost is the cost of the next best alternative.


To show how resources are allocated we can use a production possibility curve. This economic model points the maximum quantities of different combinations of output of two products. If the productive potential changes it is called economic growth.

As showed on the diagram above, points A, B and C represent the points at which production of Good A and Good B is most efficient. Point X is the point at which resources are not being used efficiently in the production of both goods; point Y demonstrates an output that is not attainable with the given inputs.

Opportunity Cost Video