Unit One – Flashcard
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the study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants
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Economics
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means that people do no and cannot have enough income and time to satisfy their every want
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scarcity
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resources of land, labor, capital, and entrepreneurship used to produce goods and services
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factors of production
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natural resources and surface land and water
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land
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human effort directed toward producing goods and services
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labor
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tangible objects that satisfy people's wants or needs
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goods
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activities done for others for a fee; satisfy people's wants and needs
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services
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the manufactured goods used to make other goods and produce other services
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capital
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the amount of output (goods and services) that result from a given level of inputs (labor, land, capital, and entrepreneurship)
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productivity
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when individuals take risks to develop new products and start new businesses in order to make profits
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entrepreneurship
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the use of science to develop new products and new methods for producing and distributing goods and services
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technology
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anything other than what people need for basic survival is a want
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difference between want and a need
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Land, labor, capital, and entrepreneurship
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what are the four factors of production?
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scarcity always exists because of competing alternative uses for resources, whereas shortages are temporary
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what is the difference between scarcity and shortages
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scarcity
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what is the condition that results because wants are unlimited?
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sacrificing one good or service to purchase or produce another
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Trade-off
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value of the next best alternative given up for the alternative that was chosen
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opportunity cost
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graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time
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production possibility curve
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whenever you make a trade-off, an opportunity is given up (opportunity cost)
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how are trade-offs and opportunity costs related?
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to sacrifice an activity in order to do something else
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what does making a trade-off require you to do?
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opportunity cost
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what do economists call the next best alternative that was given up for the one chosen?
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cost is something sacrificed in order to do something else
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in economics, what is cost?
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the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time l these curves show what the opportunity cost will be if a particular action is taken.
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what does a production possibilities curve show?
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the branch of economic theory that deals with behavior and decision making by small units such as individuals and firms
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Microeconomics
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the branch of economics theory dealing with the economy as a whole and decision making by large units such as governments
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Macroeconomics
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the production and distribution of goods and services in a society
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economy
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a theory or simplified representation that helps explain and predict economic behavior in the real world
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economic model
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an assumption involving two or more variables that must be tested for validity
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hypothesis
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because economists' beliefs influence how they view facts and fit them into theories; economists obtain different values
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Why are there different schools of economic thought?
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real world data is used to analyze how the real world works; helps explain and predict economic behavior in the real world
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for what purposes do economists use real-world data in building models?
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economic models
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what are theories in economics called?
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way in which a nation uses its resources to satisfy people's needs and wants
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economic system
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system in which economic decisions are based on customs and beliefs that have been handed down from generation to generation
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traditional economy
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system in which the government controls the factors of production and makes all decisions about their use
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command economy
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system in which individuals own the factors of production and make economic decisions through free interaction while looking out for their own and their families' best interests
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market economy
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the process of freely exchanging goods and services between buyers and sellers
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market
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economic model that pictures income as flowing continuously between business and customers
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circular flow of economic activity
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system combining characteristics of more that one type of economy
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mixed economy
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1. What should be produced? 2. How should it be produced? 3. For whom should it be produced?
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What three questions must all economic systems answer?
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Tradition answers the questions! advantages: -know what's expected -family/community are strong Disadvantages: - change is discouraged/punished -methods of production often are inefficient -choices of consumer goods are rare -people/workers living in this economy don't experience an increasing level of material well-being -things stay the same
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Traditional system questions: 1. who answers the three basic questions; 2. advantages; 3. disadvantages
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Government leaders answer three questions! advantages: -distribution of equal wealth prevents production of socially undesired products Disadvantages - lack of incentive to work hard/show inventiveness -lack of consumer choice -government sets salary- no reason to work efficiently
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Command system questions: 1. who answers the three basic questions; 2. advantages; 3. disadvantages
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Individuals looking out for their own and their families' best interest answer questions! Advantages: - individuals decide answers to the questions individuals own factors of production -people have freedom Disadvantages: - concern for those too young, too old, or too sick to work
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market system questions: 1. who answers the three basic questions; 2. advantages; 3. disadvantages
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individuals!
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Who owns the factors of production in a market economy?
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How should it be produced?
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What economic question is being answered if an industry replaces some workers with machines?
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economic system in which private individuals own the factors of production
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capitalism
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economic system in which the government minimizes its interference with the economy
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laissez-faire
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economic system in which individuals own the factors of production and decide how to use them within legal limits; same as capitalism
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free-enterprise system
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amount earned after a business subtracts its costs from its revenues
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profit
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desire to make money that motivates people to produce and sell goods and services
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profit incentive
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whatever is owned by individuals rather than by government
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private property
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rivalry among producers or sellers of similar goods and services to win more business
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competition
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the government places certain legal restrictions on freedom of enterprise
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what is the role of government in our free-enterprise society?
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freedom of enterprise: Individuals are free to own/control the factors of production. Freedom of choice is the other side of freedom of enterprise buyers-not sellers-make the decisions about what should be produced.
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How do freedom of enterprise and freedom of choice apply to the American economy?
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1. limited role of government 2. freedom of enterprise 3. freedom of choice 4. profit incentive 5. competition 6. Private property
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what are six important characteristics of a pure economic market system?
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the government lets people and businesses make their own economic decisions without government interference; private individuals own factors of production but use them within certain legislated limits
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what is government's limited role in pure capitalism?
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because our founding fathers recognized these rights must not be violated because these rights are the invisible engine for creating wealth and prosperity for all.
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Why is private property important in the American economic system?
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wise use of available resources so as to obtain the greatest benefits possible
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economic efficiency
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the attempt to balance an economic policy so that everyone benefits fairly
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economic equity
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the material well-being of an individual, group, or nation measured by how well their necessities and luxuries are satisfied
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standard of living
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expansion of the economy to produce more goods, jobs, and wealth
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economic growth
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In order for free enterprise system to work, 1. you have to be able to support yourself and use your education in a way that helps you become a productive member of the free-enterprise system; 2. we have the responsibility of electing responsible government officials
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How can people balance economic rights with economic responsibilities?
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Economic growth, efficiency, and equity
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What are three goals of free-enterprise system?
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Freedom: -start new business -own private property -make decisions in market place -if business fails, entrepreneur takes full responsibility-government won't help financially Efficiency: - using limited resources wisely -if factors of production are wasted, fewer goods/services will be produced Equity: -attempt to balance an economic policy so that everyone benefits fairly Security: -protection against risks beyond our control (our economic system provides security through government social programs) stability: -seeks to reduce extreme ups and downs in the standard of living growth: -producing increasing amounts of goods/services over the long term
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Goals of a market economy
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any person or group that buys or uses goods/services to satisfy personal needs and wants
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consumer
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income remaining for a person to spend or save after all taxes have been paid
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disposable income
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money income a person has left to spend on extras after necessities have been bought
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discretionary income
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choosing the alternative that has the greatest value from among comparable-quality products
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rational choice
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extras such as luxury items or entertainment
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what kinds of products are purchased with discretionary income?
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1. Is the item a need? 2. Is the item a want? 3. what trade-offs are involved?
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before you buy anything, what three questions should you ask yourself?
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No! each person's value system for his/her expenditures is different. A rational choice is one that generates that greatest perceived values for any given expenditure.
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do all rational consumers think alike?
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advertising that attempts to persuade consumers that a product is different from and superior to any other
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Competitive advertising
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advertising that benefits consumers by providing useful information about a product
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informative advertising
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ad that attracts consumers with a low priced product, then tries to sell them a higher priced product
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bait and switch
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promise made by a manufacturer or a seller to repair or replace a product within a certain time period if it's found to be faulty.
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warranty
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word, picture, or logo on a product that helps consumers distinguish it from similar products
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brand name
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general brand for a product rather than a specific brand name given by the manufacturer
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generic brand
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you sacrifice your time
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what trade-offs occur when gathering information
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1. Gather information 2. use advertising wisely 3. learn to comparison shop
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what are three important buying principles?
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Competitive advertising: Coke v Pepsi informative advertising: drug advertisements
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what are 2 types of advertising? give example of each1
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read newspaper advertisements, make phone calls, browse the web, visit different stores, and talk to friends who have the product
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how can you learn to practice comparison shopping?
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movement to educate buyers about the purchases they make and to demand better and safer products from manufacturers
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consumerism
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acting in accordance with moral convictions about right and wrong
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ethical behavior
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Local citizens' action groups and local chapters of the Better Business Bureau can give help to consumers. They give consumers information on products/selling practices and help settle disagreements between buyers and sellers; federal agencies also have programs to aid consumers
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what private and federal help can you receive as a consumer?
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1. Initiate problem-solving process 2. Make sure, when buying items online, that you're buying from a reputable, trustworthy, source 3. exhibit ethical behavior
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What are your consumer responsibilities?
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Right to redress right to be heard right to choose right to be informed right to take case to small-claims court right to safety right to complain
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Rights as a consumer (Include rights stated by JFK and Nixon)
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receipt of funds either directly or indirectly to buy goods and services in the present with the promise to pay from them in the future
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credit
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amount originally borrowed in a loan
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principle
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amount the borrower must pay for the use of someone else's funds
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interest
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manufactured items that have a life span of longer than 3 years
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durable goods
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type of loan repaid with equal payments, or installments, over a specific period of time
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installment debt
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installment debt owed on houses, buildings, or land
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mortgage
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a longer repayment period results in a smaller monthly payment
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what are the advantages of repaying installment debt over a long period of time?
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people go into debt when money is borrowed
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why do people go into debt?
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you have to pay interest along with principle
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what do you have to pay when you borrow?
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because in both cases, you must pay interest for the use of someone else's purchasing power
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how is taking out a loan similar to buying an item on credit?
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people use installment debt on durable goods (cars,washers, etc)
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what type of goods do people typically use installment debt to buy?
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bank whose main functions are to accept deposits, lend funds, and transfer funds among banks, individuals, and businesses
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commercial bank
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depository institution that accepts deposits and lends funds
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Savings and Loan association
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depository institution originally set up to serve small savers overlooked by commercial banks
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savings bank
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depository institution owned and operated by its members to provide savings accounts and low-interest loans only to its members
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credit union
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company that takes over contracts for installment debts from stores and adds a fee for collecting debt; a consumer finance company makes loans directly to consumers at high rates of interest
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finance company
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credit extended to a consumer allowing the consumer to buy goods or services from a particular company and to pay for them later
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charge account
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credit device that allows a person to make purchases at many kinds of stores, restaurants, and other businesses without paying cash
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credit card
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cost of credit expressed monthly in dollars and cents
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finance charge
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cost of credit expressed as a yearly percentage
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annual percentage rate (APR)
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1. Regular charge account 2. revolving charge account 3. installment charge account
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what are three kinds of charge accounts available from stores?
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they allow people to make purchases without cash; gives consumers access to loans at all times without having to apply for them
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How are credit cards used?
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finance charge=the cost of credit expressed monthly in dollars and cents APR= cost of credit expressed as a yearly percentage
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how do finance charge and annual percentage rate differ?
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1. Commercial banks 2. savings and loans associations 3. savings banks 4. credit unions 5. finance company 6. consumer finance company
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What are the 6 types of basic lending institutions in our economy?
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finance charge
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when you take out a loan, what do you call the total cost of credit expressed in dollars and cents?
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private business that investigates a person to determine the risk involved in lending to that person
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credit bureau
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investigation of a person's income, current debts, personal life, and past history of borrowing and repaying debts
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credit check
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rating of risk involved in lending to a specific person/business
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credit rating
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something of value that a borrower lets the lender claim if a loan is not repaid
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collateral
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loan that is backed up by collateral
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secured loan
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loan guaranteed only by a promise to repay it
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unsecured loan
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1. pay debts on time 2. keep complete record of all charges made 3. if card is missing/stole, contact credit-card issuer
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What are your responsibilities as a borrower?
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Past credit history capacity to pay(how much debt compared to income) Collateral (size of your capital or personal wealth) character (reputation as a reliable and trustworthy person)
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four facts that determine credit rating
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secured loans are backed up with collateral; unsecured loans are guaranteed only by a promise to repay it
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what is the difference between a secured and unsecured loan?
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law restricting the amount of interest that can be charged for credit
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usury law
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the state of legally having been declared unable to pay off debts with available income
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bankruptcy
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required creditors to keep consumers informed about the costs/conditions of borrowing
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the Truth in lending act
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creditors cannot deny credit to anyone on the basis of race, religion, national origin, gender, marital status, or age; and you can be denied because your income may come from public assistance benefits
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the Equal credit opportunity act
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restricts the amount of interest that can be charged for credit; but consumer finance agencies can charge higher rates due to higher risk in their loans
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state usury laws
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if the debtors take out too many loans, use too many credit cards, and pile up debts that cannot be payed off
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why might a person declare bankruptcy
