Running head: ECO2072
Wk 1 As 2 Basic Economics Concepts 8
Basic Economic Concepts
Dr. David Gordon
South University Online
The Concepts of Basic Economics
There are several concepts in economics that can give an idea of how our economy works. The term economy is derived from the Greek term "oikonomos", and it suggests "one who manages a household." A household has to manage all the tasks that make it run efficiently and so does society. "Economics is the exploration of how society oversees the scarcity of its supplies." (Mankiw 4). These concepts are absolute and comparative advantage, the "invisible hand", circular flow diagrams, the Production Possibilities model, and micro and macroeconomics. Each concept will be explained in this paper. When you go out into the work force you earn wages, you also spend part of them at some point, and as you do, you are participating in the economy, so it's important to see how the concepts work.
Absolute advantage is the capacity to manufacture a good or service consuming the least amount of resources than all the other producers use. "Economists use the term absolute advantage when comparing the productivity of one person, firm, or nation to that of another. The producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good."(Mankiw 52). The most important benefit to international trade that is gained with absolute advantage is every nation has a total benefit in one good, service, or other. Absolute advantage has a gain for worldwide commerce, in that each country's citizens could advance their financial well-being by trying to specialize in the fabrication of goods and services their country has the complete advantage of and selling abroad those products/services to more...