Economics Unit 1 Definitions – Flashcards
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economics
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study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants
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microeconomics
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deals with behavior and decision making by small units such as individuals and firms
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macroeconomics
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deals with the economy as a whole and decision making by large units such as governments
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scarcity
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people who do not and can not have enough income and time to satisfy their every want
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factors of production
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resources needed to produce goods and services
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land
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natural resources that exist without human intervention
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labor
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work people do, also known as human resource
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goods
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tangible items that people can but (medicine, clothing, computers, etc)
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services
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activities done for others for a fee
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capital
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the manufactured goods used to make other goods and produce other services
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productivity
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greater quantities of goods and services are produced in better and faster ways
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entrepreneurship
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ability of individuals to start new businesses, introduce new products and processes, and improve management techniques
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technology
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any use of land, labor, and capital that produces goods and services more efficiently
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a need is something you require for basic survival, a want is something such as a new car or electronics
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difference between wants and needs
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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, a shortage is only temporary and mainly occurs after natural disasters
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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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A want
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Is needing new clothes classified under a want or a need?
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trade-off
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exchanging one thing for another
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opportunity cost
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the value of the next best alternative that had to be given up to do the action that was chosen
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production possibility curve
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show 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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When making a trade-off you lose something, which relates to opportunity cost where you give up an opportunity
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How are trade-offs and opportunity costs related?
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It requires you to forego one thing when you choose another
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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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economic cost is the sacrifice involved in performing an activity or following a decision or course of action
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In economics, what is cost?
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They show 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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What does a production possibilities curve show?
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economy
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all the activity in a nation that together affects the production, distribution, and use of goods and services
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economic model
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theories the economists use in their work
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hypothesis
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an educated guess or prediction
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Economists have different perspectives and don't necessarily agree with each other
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Why are there three different schools of economic thought?
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To show activity in a nation that affects the production, distribution, and use of goods and services
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For what purpose do economists use real-world data in building models?
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A theory is referred to as a hypothesis
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What are theories in economics called?
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economic system
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the way a nation determines how to use its resources to satisfy its people's needs and wants
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traditional economy
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answers three basic questions according to tradition
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command economy
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similar to traditional; individual has little, if any influence over how the basic economic questions are answered
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market economy
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capitalism
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market
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voluntary exchange of goods and services between buyers and sellers
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circular flow of economic activity
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the flow of resources, goods, and services, and income in a market system
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mixed economy
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combines basic elements of a pure market economy and a command economy
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What should be produced? How should it be produced? For whom should it be produced?
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What three questions must all economic systems answer?
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Individuals own factors of production in a market economy
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Who owns the factors of production in a market economy?
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How should it be produced? would be answered
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What economic question is being answered if an industry replaces some workers with machines?
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capitaliam
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another name for the market system
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laissez-faire
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pure capitalism
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free-enterprise system
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individuals are free to own and control the factors of production
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profit
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amount left after all the costs of production have been paid (wages, rent, interest, taxes, etc)
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profit incentive
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desire to make profit; also known as profit motive
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private property
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property that is owned by individuals or groups rather than by the federal state or local governments
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competition
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rivalry among producers of similar products to win more businesses by offering lower prices or better quality
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The government places legal restrictions on freedom of enterprise (zoning regulations, child labor laws, hazardous waste disposal, etc)
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What is the role of government in our free-enterprise society?
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Buyers not sellers, make decisions about what should be produced. The success or failure of a good or service in the marketplace depends on individuals freely choosing what they want to buy
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How do freedom of enterprise and freedom of choice apply to the American society?
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ownership of private property, perfect competition, profit motive, consumers sovereignty, freedom of occupational choice, and least government interference
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What are six characteristics of pure economic market?
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They regulate the quantity of various foods and drugs, watch over the nation's money and banking system, inspect workplaces for hazardous conditions, and guard against damage to the environment
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What is the governments limited role in pure capitalism?
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People having rights to risk investments, own productive assets, and learn new ways of producing creates wealth and prosperity for all
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Why is private property important in the American economic system?
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economic efficiency
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wise use of available resources so as to obtain the greatest benefits possible
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economic equity
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the attempt to balance an economic policy so that everyone benefits fairly
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standard of living
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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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economic growth
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expansion of the economy to produce more goods, jobs, and wealth
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They must be able to support themselves and their families, and use their education to help them become a productive member of the free enterprise system
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How can people balance economic rights with economic responsibilities ?
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Freedom, efficiency, equity, security, stability, and growth
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What are three goals of the free-enterprise system?
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consumer
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any person or group that buys or uses goods and services to satisfy personal needs and wants
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disposable income
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income remaining for a person to spend or save after all taxes have been paid
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discretionary income
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money income a person had left to spend on extras after necessities have been bought
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rational choice
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choosing the alternative that has the greatest value from among comparable-quality products
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Luxury items and entertainment
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What kinds of products are purchased with discretionary income?
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Reason for purchase, concentrate on needs first, and consider trade-offs involved
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Before buying anything, what three questions should you ask yourself?
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No because each person's value system is different
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Do all rational consumers think a like?
