Economic – Flashcard
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Any human-made resource that is used to create other goods and/or services is
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capital.Human capital is the skills and knowledge each worker brings to a job; physical capital is the tools and buildings needed to produce goods and services.
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Limited quantities of resources to meet unlimited wants is a
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Scarcity implies that a limit will be reached at some point of time
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Why are individuals, companies, and governments required to constantly make choices about how to best utilize resources?
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There is always a scarcity of resources. EXPLANATION: Every time we choose to use a resource in one way we are giving up another way in which the resource could be used. For example, farmers who choose to plant corn on 100 acres give up the choice of using those same acres to plant wheat.
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Why are scarcity and choice basic to the study of economics?
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because there is not an endless supply of all resources EXPLANATION: Since there are limited resources, the problem of how to allocate them is cause for study.
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Something such as air, food, or shelter that is necessary for survival is a
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We need air, food, and shelter to live.
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entrepreneur?
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The shop owner is combining resources—land, labor, and capital—in an original way
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Physical objects such as clothes or shoes are defined as
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goods Goods are things we can hold or touch as opposed to services, which are things we do, such as medical care or computer repair.
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shortage?
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Soda is a product which can be in short supply but not scarce, as are resources such as oil, wood, and water.
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Natural resources that are used to make goods and services are considered
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and encompasses things such as coal, water, and forests as well as land itself.
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What are you doing when you make a decision at the margin?
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reviewing several options of how to use one additional unit of a resource EXPLANATION: If a company is trying to decide whether to make all golf shoes or all basketball shoes, a decision at the margin might result in them making some of each.
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How are trade-offs and opportunity costs different?
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The opportunity cost is the most desirable trade-off. EXPLANATION: All choices you make involve at least one trade-off; the one hardest to give up is the opportunity cost.
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A trade-off is
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: an alternative that we sacrifice when we make a decision. EXPLANATION: To trade is to exchange one thing for another; a trade-off, then, can be explained as by choosing one thing while refusing another.
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Factors of production are
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land, labor, and capital; the three groups of resources that are used to make all goods and services. EXPLANATION: In math, the factors are the numbers you multiply (2 x 5) to get a product (10); in economics the factors (land, labor, and capital) are the resources you combine to make products (goods and services).
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An example of an opportunity cost would be
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not being able to afford a family trip because the family buys a computer. EXPLANATION: Because resources are scarce, for every decision you make you give up something; the opportunity cost is the most desirable alternative you give up.
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a guns or butter decision?
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A nation decides to produce fewer fighter jets and more bridges. EXPLANATION: "Guns or butter" is a simple phrase economists use to describe the choices governments must make about allocating resources toward military needs and wants (guns) or to consumer needs and wants (butter).
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An opportunity cost is
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the most desirable alternative given up as the result of a decision. EXPLANATION: An opportunity cost is the best in a list of trade-offs.
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A phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods is
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guns or butter. EXPLANATION: If a country chooses to use its steel to make more armored tanks (guns), it has less steel to make equipment that processes dairy products (butter).
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What is something you might use to help you make a choice between two seemingly equal alternatives?
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: a decision-making grid EXPLANATION: People use decision-making grids to make decisions about unclear or complicated choices because a decision's opportunity cost may be unclear. A decision-making grid helps people look at the pro's and con's of different choices.
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Deciding whether to do or use one additional unit of some resource is
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thinking at the margin. EXPLANATION: Rachel, a sophomore in high school, was thinking at the margin when she was contemplating whether she should study alone for two more hours or attend a group study for this amount of time.
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On a production possibilities graph, a point of underutilization would appear
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below or to the left of the production possibilities frontier. EXPLANATION: Production possibilities graphs show the choices we have for using scarce resources to make products.
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A production possibilities curve is a graph that shows
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alternative ways to use an economy's resources. EXPLANATION: The axes of production possibilities graphs can be set up to show categories of goods and services or any pair of specific goods and services, such as hair cuts and auto repair.
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Why are there always opportunity costs when we shift from making one product to another?
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Some resources are better suited for use in making the first product. EXPLANATION: If the rocky ground once used for a factory is converted to farmland, it will produce fewer crops than the more fertile ground currently used.
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. Production possibilities graphs are important tools for
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showing ways to use an economy's productive resources. EXPLANATION: The axes of production possibilities graphs can be set up to show categories of goods and services, or any pair of specific goods and services
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Efficiency is
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using resources in such a way as to maximize the production of goods and services. EXPLANATION: For example, if there are a limited number of acres, farmers, and seeds, some method for combining them are more efficient than others to produce crops.
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What is the name of the law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases?
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the law of increasing costs EXPLANATION: If a shoe factory decides to make more golf shoes than basketball shoes, then it will have fewer resources to make basketball shoes and the cost of producing the golf shoes will increase
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The production possibilities frontier is
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the line on a production possibilities graph that shows the maximum possible output. EXPLANATION: The production possibilities frontier shows combinations of the production of specific goods and services, such as cars and computers.
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Using fewer resources than an economy is capable of using is
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underutilization. EXPLANATION: If an economy is capable of producing 14 million pairs of shoes and 12 million watermelons, but is only producing 5 million pairs of shoes and 8 million watermelons, there is significant underutilization of resources.
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Using the factors of production to make one product always means that
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fewer resources are left to make something else. EXPLANATION: Once an amount of steel is used to make guns, for example, the same steel cannot be used to make dairy equipment
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A country's production possibilities depend on
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If resources and technology grow, then more goods and services can be produced; likewise if they shrink, fewer goods and services result. A country's resources include all of its factors of production.
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In the study of economics, the definition of a market is
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an arrangement that allows buyers and sellers to exchange things. EXPLANATION: Markets drive the free enterprise system allowing for a higher standard of living than in most other kinds of economies.
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A household is a person or a group of people who live in the same residence. In economics, households are also
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consumers of goods and services. EXPLANATION: In a free market, households are consumers because they exchange the factors of production for the goods and services provided by firms.
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Why do markets exist?
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because people are not self-sufficient and need goods and services produced by others EXPLANATION: Markets exist because no one is self-sufficient.
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The invisible hand is
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a term economists use to describe the self-regulating nature of the marketplace. EXPLANATION: What consumers buy in the marketplace guides manufacturers to what to produce
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The struggle among producers for consumer dollars is
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competition. EXPLANATION: Competition keeps prices on popular and needed goods and services from rising too high as to be out of reach for average consumers.
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According to Adam Smith, what are the two factors that regulate a marketplace?
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competition and self-interest EXPLANATION: Competition regulates prices; self-interest regulates kinds and amounts of goods and services produced.
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Which of the following is an example of competition in the marketplace?
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A small town has only two grocery stores, which are located one block away from each other. EXPLANATION: Both grocery stores compete for the business of consumers in the town.
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Consumer sovereignty is
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the power of consumers to decide what gets produced. EXPLANATION: Rather than the government directing the kinds and amounts of goods and services produced, consumers guide manufacturers and sellers to produce the products they want and need by what they buy and also by what they don't buy.
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What is the purpose of a firm?
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to produce goods and services EXPLANATION: Firms supply households with the things they want and need in the form of goods and services.
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Something, such as a reward or bonus, that encourages people to behave in a certain way could be called
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an incentive. EXPLANATION: Product manufacturers use incentives, such as coupons, to get consumers to buy their products.
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An economic system characterized by private or corporate ownership of capital goods; investments that are determined by private decision rather than by state control; and determined in a free market is
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free enterprise. EXPLANATION: The United States' economic system is an example of a free-enterprise system.
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Which of the following is NOT a main priority of the U.S. government?
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subsidizing businesses to keep product prices low EXPLANATION: Government does subsidize some businesses but not for the reason of keeping product prices low; mostly governments subsidize businesses because they provide a public need that otherwise might not be met.
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Which of the following goods is provided by the U.S. government rather than by individuals?
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roads EXPLANATION: It's impractical for the marketplace to provide for roads, so that role is fulfilled by the government.
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Laissez faire is
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the doctrine that states that government generally should not intervene in the marketplace. EXPLANATION: The doctrine of laissez faire has some limits because no marketplace can satisfy all of a society's needs and wants
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Why do governments fulfill some of society's needs, such as education, health care, and mass transit?
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so that all members of the society can participate EXPLANATION: The marketplace cannot meet all the needs and wants of all its members.
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Property owned by individuals or companies, not by the government or the people, as a whole is
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private property. EXPLANATION: The 5th amendment to the U.S. Constitution provides protection against the government seizing private property without proper compensation.
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With "centrally planned" on the left and "free market" on the right, which of the following countries' economic systems would be farthest to the right on the Continuum of Mixed Economies?
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Hong Kong EXPLANATION: Hong Kong has very few limits imposed by government.
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8. Which of the following countries is in transition from a centrally planned economy to a market-based system?
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China EXPLANATION: With each passing year, China has more privately owned businesses.
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A Continuum is a
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range with no clear divisions. EXPLANATION: Countries' economies range on a continuum with totally controlled by government on one end and nearly totally controlled by individuals and privately owned firms on the other
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. To sell state-run firms to individuals is to
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privatize. EXPLANATION: China is selling more of its state-owned firms to individuals and private firms.
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The method used by a society to produce and distribute goods and services is
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an economic system. EXPLANATION: Several different kinds of economic systems have evolved in response to the problem of scarcity, which is the problem that forces nations to answer difficult economic questions.
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Government programs that protect people experiencing unfavorable economic conditions are
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a safety net. EXPLANATION: Most countries provide some kinds of economic assistance for the elderly, the very young, the poor, and the unemployed.
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How a society answers the key economic questions primarily depends on
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a society's goals and values. EXPLANATION: Each society balances economic goals such as economic efficiency and freedom against others such as economic security and equity
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The income people receive for supplying factors of production, such as land, labor, or capital, are
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factor payments. EXPLANATION: Factor payments are the income people receive for supplying factors of production.
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All of the following are key economic questions that every society must answer
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: Where should goods and services be produced? EXPLANATION: Each system answers the question of the distribution of goods and services based on its unique combination of social values and goals.
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What has been mostly responsible for advancing from the agricultural age to the industrial age
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innovation EXPLANATION: The advancements from the agricultural age to the industrial age along with the move from the industrial age to the information age are both attributed to innovations in technology.
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A mixed economy is
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a market-based, economic system based on free enterprise with some government involvement. EXPLANATION: Most modern economies rely on government to supply only those services that are economically impractical for the market to handle, such as national defense and education. Market economies are the result of free enterprise.
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A centrally planned economy is
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an economic system in which the government makes all the decisions about production and consumption of goods and services. EXPLANATION: A centrally planned economy is run by a central government and does not allow for free enterprise.
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In which economy do communities generally have a low standard of living?
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traditional economy EXPLANATION: Inefficient use of resources, which is characteristic of a traditional economy, generally results in a low standard of living.
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In a centrally planned economy, the three key economic questions are answered by the
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central government alone. EXPLANATION: In a centrally planned economy, nearly all businesses are owned by the central government, nearly all production is planned by the central government, and nearly all goods and services are distributed by the central government
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Elasticity of Demand
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A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price.
