Economics-Chapter 1 – Flashcards
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What is the basic economic problem?
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Scarcity
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Because there is scarcity, what do people have to do?
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Make choices about how to use limited resources
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What are the driving forces behind economics?
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Scarcity and Choices
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What do people have to decide because of scarcity?
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How to satisfy unlimited wants with limited resources
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Define Economics.
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The study of how people use limited resources to fulfill their unlimited wants
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Define microeconomics
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Behavior and decision making by small units (individuals and firms)
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Define macroeconomics
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The economy as a whole and decision making by large units (government)
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What's the difference between wants and needs.
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Needs: necessary things for survival (food,clothing, shelter) Wants: Anything other than the basic survival necessities
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What is an economist's definition of wants
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Anything other than what people need to survive
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WHat choices do individuals make?
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How to satisfy their unlimited wants with limited resources
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What choices do businesses make?
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What to produce now, later,and what to stop producing
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What choices do societies make>
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How to utilize their resources
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What is the focus of economics?
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How choices are made
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What do people have to do when faced with unlimited wants and limited resources.
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Make choices
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When making economic decisions, what are our TWO limited resources?
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Money and time
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Other than individuals, what other groups of people make economic choices?
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Businesses, societies, governments
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Why does scarcity exist?
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Because people's incomes and time are limited
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Define scarcity
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Basic economic problem that results from a combination of limited resources and unlimited wants
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Define shortages
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Temporary lack of something
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What do scarce resources require?
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Choices about uses of the factors of production
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What are the factors of production?
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Capital, entrepreneurship, land, labor
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Define factors of production
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Resources of land, labor, capital, and entrepreneurship used to produce goods and services
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What does T-Cell stand for?
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Technology, capital, entrepreneurship, land, labor
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Define land
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Natural resources and surface land and water(exist without human intervention)
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Define labor
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The work people do to produce goods and services (human effort)
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Define goods
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tangible items that people can buy to satisfy people's wants r needs
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Define services
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Activities done for others for a fee
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Define capital
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manufactured goods used to make ther goods and produce other services
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What are capital gooods?
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machines, buildings, and tools used in making goods
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When is a car cnsidered a capital good?
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WHen it's used as a taxicab
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Define productivity
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Greater quanities of goods and services are produced in better and faster ways (the amount of output that results from input
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What is output?
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Goods and services (produced)
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What is input?
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The factors of production that you put into something to create your product
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Define entrepreneurship
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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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What precent of new business enterprises fail?
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30%
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How is land different from the other factors of production?
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Land is any natural resource not created by people
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Define technology
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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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What effect do f.o.p. have on the income and wealth of individuals and nations?
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The more land and capital you have, the richer you will probably be
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What did Adam Smith found?
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Classical economics
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What was the nationality of Adam Smith?
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Scottish
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How long did Smith study at Glasgow University?
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3 years
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What is the Wealth of Nations?
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Adam Smith's work that brought together the economic concepts and theories that established the basis of modern economics
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What was Smith's point of view regarding the best way to promote the general welfare of society?
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By allowing individuals to pursue their own self-interest within the law
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What role did Smith foresee government playing in this process?
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Limited regulation; very little government interference
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What did Smith mean when he referred to an "invisible hand" that guides people's economic choices?
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If you let people do what they want, an invisible hand willl guide them to make better choices to benefit everyone
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What is the casing made of? Where is it from?
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Incense cedar; from High Sierras in California, Oregon, and Washington
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Where are the manufacturers from?
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Lewisburg, Tennesee: Eberhard Faber Division and J.R. Moon Pencil Company
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Where is the wax from?
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Brazil
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What is the eraser made of? Where is it from?
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Pumice-Italy and Rubber-Malaysia
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Why are pencils painted yellow?
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To honor China (royalty and respect)
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What is the lead made of? WHere is it from?
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Graphite- Sri Lanka, Madagascar, Mexico and Clay- Germany and Georgia
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What do economic decisions always involve?
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Trade offs
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Define trade-off.
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Sacrificing one thing to buy another
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What are some trade-offs involved in deciding to go to college right after high school?
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You give up the oppurtunity to make money right away and you may have to take on the burden of student loans
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Define oppurtunity cost
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The value of the next best alternative given up for the alternative that was chosen
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What's the difference between an oppurtunity cost and a trade off?
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Trade offs are anything you give up while oppurtunity cost is the value of most important thing yu gave up
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Define production possibilites curve.
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a graph to show the maximum combinations of goods and services that can be produced from fixed amount of resources in a given period of time
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What does a production possibilites curve determine? What does it reveal?
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It determines how much of an item to produce and it reveals the trade-offs and oppurtunity costs involved in each decision
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What does guns and butter mean?
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Guns-military goods Butter-civilian goods
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How does the U.S. government use a production possibilities curve to decide on the federal budget?
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it decides how to use the revenue to best serve the nation
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What do economists use models for?
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To explain and predict economic behavior/events
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What are the benefits of using models to predict economic behavior?
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Explain economic behavior, simplifies relationships and variables, and predicts future events
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What are the drawbacks of using models to predict economic behavior?
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Over-simplifies real-world situations, influenced by personal values, economists may disagree about accuracy and usefulness of model
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According to polls, how do Americans feel about their incomes?
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Whatever their income level, they need more to live well
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What's the difference between analyze and judge?
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Analyze:whether it'll work or not, judge: whether it's a good idea or not; they're supposed to analyze, not judge
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Why do economists construct models?
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TO investigate the way that economic systems work
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Define economy
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the production, distribution, and use of goods and services
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Define economic model
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Therory that explains and predicts economic behavior
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How do you think economists might gather the data to develop economic models?
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By studying specific parts of the economy, polls, etc.
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What;s the most common type of economic model?
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A line graph explaining how customers react to changes in prices of certain goods and services
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What d economic models assume?
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That some factors remain constant
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What are the steps in creating an economic model>
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1. gets an idea 2. collects facts 3. throw out irrelevant facts 4. form a hypothesis 5. test their hypothesis 6. gather more data and see if it supports your hypothesis
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Define theory
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A model that explains observations
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Define hypothesis
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An educated guess or prediction
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What is accomplished by testing a model?
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It allows economists to see if the model does a good job of representing reality
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Why is applying models to real life challenging for economists?
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Because they have to take into account several factors that may influence people's behavior
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Why are economic theories supported differently?
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Because different people see things differently
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What are some reasons economists do not all agree on economic theories?
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Their personal opinions and beliefs influence how they view facts and fit them in theories
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What is a "laissez-faire" policy as it applies t government>
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hands off policy- businesses and consumer affairs to prevent increased unemployment and inflation
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WHats the literal translation of laissez-faire?
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to allow to do; (to allow people to do what they want)
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What can learning about economics help you predict in the future?
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What may happen if certain events occur or certain policies are followed
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What are personal judgements about economic outcomes based on?
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a person's values
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define values
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the beliefs or characteristics that a person or group considers important
