Economics is a social science that studies production, distribution, and consumption of services and goods. The production of goods and services results in wealth distribution. Opportunity cost refers to the value of something that must be given up to acquire something else. Opportunity cost is an important cost in economics that helps in cost analysis.
Production possibilities refer to an alternative combination of goods produced when the economy is fully using all the available resources. A production possibility is understood by the help of a production possibility curve.
For instance, from the diagram above points ABC represents point when production of products A and B are most efficient. At point X, the resources are not used efficiently in production and point Y is unattainable with the given resources.
Trade and comparative advantage
This refers to the ability of a company or an individual to produce goods at a low opportunity cost compared to others. Comparative advantage therefore creates competition because the firm that has comparative advantage can sell at lower prices.
Circular flow model
Circular flow model is a model that describes the flow of products and money throughout the economy. This model represents the contributors in the economy as either firms or households. Firms refer to producers whereas households refer to consumers.
Demand refers to the quantity of products and services desired by buyers at a particular time whereas supply is the quantity of goods and services the producers are willing to provide at certain prices. Supply and demand largely controls the prices of goods and services in the market. The law of supply and demand is best illustrated using the supply and demand curves as shown
Consumer/ producer surplus
Consumer surplus refers to the differences between what the consumers are willing to pay for goods and services and what they actually pay. It occurs when the buyer has the ability to and is willing to pay more than the original price. Producer surplus refers to the measure of economic difference between the amounts the producer of goods and services received and the existing minimum market price the producer can get for the goods and services.
Price controls refer to government policies and regulation setting maximum or minimum prices by which good and services can be obtained in the market. Price controls are usually on essential items such as food and fuel.
The term elasticity refers to the measure of a variables sensitivity to changes in the market in comparison to other variables. In a nutshell, it is the degree to which an individual(producers/consumers change in demand divided by the amount supplied with respect to income and price changes
Elasticity = %change in quantity/ %change in prices
Utility is an economic term used to refer to the total satisfaction received after consuming products or services. Consumer utility can be determined by consumer behavioral theories, which always has an assumption that consumers will strive to maximize utility.
Cost of production
The cost of production refers to the costs a business or a firm incurs while producing goods and services. Production cost includes the cost of raw material and labor that goes in to the production process. The cost of production largely determines the price of the commodity produced