Econ: Scarcity and Economic Reasoning – Flashcards
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Scarcity
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the condition where unlimited human wants face limited resources
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Economics
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study of scarcity
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Needs
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required for survival
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Wants
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desired for satisfaction
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The fundamental economic problem is
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scarcity, economics, needs and wants
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goods
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items that are economically useful or satisfy an economic want. they are tangible
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goods include
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1. consumer 2. capital good (John Deer) 3. Durable (+3 yrs furniture) 4. Nondurable (food clothes)
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services
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work performed for someone and are tangible
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consumers
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use goods and services to satisfy wants
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value
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expressed in dollars and cents. value is relative (depends) must have utility and scarcity
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utility
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usefulness
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wealth
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accumulation of goods that are tangible, scarce, useful and transferrable to another person. Wealth does not include services
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tinstaafl
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someone has to pay for production costs, no such thing as a free lunch
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paradox of value
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conflict (diamonds or water)
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invisible hand
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everyone acting in his or her own "rational self-interest" improves the economy and the general welfare
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Adam smith wrote
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the book the Wealth of Nations
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three basic questions
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A. what must we produce? (society must choose based on its needs) B. how should we produce it? (society must choose based on resources) C. for whom should we produce? (Society must choose to export or import)
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economics
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description ex: GDP, unemployment rate, gov. spending and tax rates
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analysis
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why and how Ex: why do prices go up and down or how taxes affect savings
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explanation
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how economy communicate knowledge of economics
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prediction
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how yesterday's and todays econ activities advise us of potential future activity
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factors of production
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are RESOURCES necessary to produce what people want or need. land capital labor entrepreneurs
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land
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society's limited natural resources- land forms, minerals, vegetation, animal life, and climate
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capital
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something is produced such as money, tools, equipment, machinery, and factories
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labor
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the workers who apply their efforts, abilities, and skills to production
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trade off
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alternative that is available whenever a choice is to be made
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opportunity costs
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cost of NEXT-BEST ALTERNATIVE use of money, time, or resources when making a choice (what you give up)
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production possibilities frontier
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diagram representing the maximum combination of goods and/or services an economy can produce when ALL PRODUCTIVE RESOURCES ARE FULLY EMPLOYED
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line represents on a ppf graph
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all units of resources
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A on ppf graph
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resources are fully employed and efficient
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b on ppf graph
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resources are fully employed and efficient
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c on ppf graph
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resources are fully employed and efficient
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d on ppf graph
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future economic growth
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e on ppf graph
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resources not fully employed, inefficient
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ways the country could reach economic growth
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1. immigration or population growth 2. trading w/ other countries to get resources needed 3. new technology 4. war-acquisition of resources 5. discovery of new resources 6. increased productivity
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what are some items that can lead to economic growth?
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1. productivity 2. investing in human capital 3. specialization and division of labor 4. economic interdependence
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productivity
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a measure of the amount of output produced by the amount of inputs within a certain time. productivity increases w/ efficient use of scarce resources
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investing in human capital
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improves productivity because when people's skills, abilities, health, and motivation advance, productivity increases
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specialization and division of labor
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may improve productivity because they lead to more proficiency (and greater economic interdependence)
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economic interdependence
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reliance on others and their reliance on us to provide goods and services. Country's productivity may be affected by its interdependence
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markets
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in the macroeconomic model are locations or mechanisms for buyers and sellers to trade. they are classified as local, regional, national, global, and cyberspace
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2 types of markets
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factor and production
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factor market
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where people earn their incomes, center on the 4 factors of production
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production market
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where people use their income to buy from producers, center on goods and services
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2 types of flows
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1. goods/services and productive resource flow 2. money and income flow
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what strategies do economists use to study scarcity
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1. build simple models-help explain more complex economic activity 2. use cost benefit analysis- compare costs of economic actions to the benefits received from that economic action (benefits greater than cost) 3. take small incremental steps-allow for gradual change to economy for stability
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what does the study of economics do for us
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1. help us better understand the workings of a free enterprise economy (define) 2. everything you study has a huge impact on your personal standard of living (define) 3. helps us become better decision makers personally/politically 4. economics provides a framework for analysis in a dynamic not static environment
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free enterprise economy
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resources are privately owned and competition is allowed to flourish with a minimum of government interference
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voluntary exchange
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the voluntary act of buyers and sellers freely and willingly engaging in market transactions
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consumer sovereignty
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the role of the consumer as ruler of the market
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division of labor
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a way of organizing work so that each worker or work group completes a separate part of the overall task.
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specialization
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takes place when factors of production perform only tasks they can do better or more efficiently than others
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gross domestic production (GDP)
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the monetary value of all final goods, services, and structures produced within a country in 1 year
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standard of living
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our quality of life based on the ownership of the necessities and luxuries that make life easier
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cost-benefit analysis
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way of comparing the benefits of an action to the expected costs
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profit motive
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the incentive to improve one's material well-being
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fixed income
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an income that does not increase over time, even though prices do
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command economy
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central planning authority, labor is organized for the good of community. advantages: change direction drastically, allows most citizens to receive some goods and services that they wouldn't be able to afford, quick changes to economy disadvantages: leaders provide for themselves rather than general, loss of individual freedom to choose, production of low quality goods, creative ideas crushed
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mixed economy
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tradition, government, and markets are in mixed, varied government interference. advantages: fast growing countries/economics, provides for some who have not yet earned some disadvantages: more services to consumers than to do traditional command economies, heavy taxes limits producers
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traditional economy
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ritual habitual or customs advantages: everyone knows what role to play, little uncertainty on what to produce/how to produce, for whom is answered by customs and traditions of society disadvantages: tends to discourage new ideas/ways of doing things, lead to stagnation of new ideas, lower standard of living and other economic systems
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market economy
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citizens own the factor of production advantages: individual freedom, change over time, small government interference, decision making is decentralized, variety of goods and services produced disadvantages: doesn't provide for everyone, doesn't provide the basic goods and services
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economic freedom
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freedom for US citizens to make own economic decisions
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economic efficiency
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people recognize the scarce resources must be used wisely in order to gain a competitive advantage
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economic equity
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a social goal that plays on God-given qualities of justice, fairness, and impartiality, so we try to promote this by minimum wage, EEOC
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economic security
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a social goal that plays on Americans desire for protection from such adverse economic effects
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full employment
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pursued to promote economic growth that is beneficial to all citizens inherently and economically
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price stability
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will help with inflation which can harm our overall economy
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economic growth
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very important for the sheer reasons of population growth
