Economics cheat sheet

Introduction to economics

• Economics studies how scarce resources with alternative uses are allocated among unlimited wants; scarcity forces choice, and the opportunity cost of a choice is the value of the next best alternative given up.
• The four factors of production are land, labour, capital and entrepreneurship; capital means produced means of production such as machines and roads, not money.
• The production possibility curve shows the most an economy can produce of two goods with all its resources fully and efficiently used: a point on it is efficient, a point inside it means unemployment or inefficiency, a point beyond it is unattainable, and an outward shift is economic growth.
• The curve bows outward because resources are not equally suited to both goods, so each extra unit of one good costs more of the other than the last: the law of increasing opportunity cost.
• Positive economics describes what is and can be tested against evidence; normative economics says what ought to be and rests on a value judgement. Every real economy, Kenya's included, is a mixed economy.