Economics Chapter 1-3 Test Questions – Flashcards
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The three actors that economists study referring to economic behaviors:
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Individuals Businesses Governments
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The driving force behind the choices made by the people above is to solve the problem of ______
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Scarcity
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What two things are produced in an economy?
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Goods and services
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What are goods?
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Physical objects that someone produces
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What are services?
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Actions/activities that someone does for others
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What are the three factors of production?
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Land, labor, capital
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What is physical capital?
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Human-made objects used to create other goods and services
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What is human capital?
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The knowledge and skills a worker gains through education
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What is the role of an entrepreneur?
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- They decide how to combine resources - take risks (loans, emotional risks) - pull it all together
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Describe the economic concept of trade-offs
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The act of giving up one benefit in order to gain a better one
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What is the guns vs butter act?
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A country that decides to produce more military goods (guns) and has less resources to devote to consumer goods (butter).
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What is opportunity cost?
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The most desirable alternative someone gives up as a result of a decision.
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What is the purpose of a production possibilities graph?
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It shows alternative ways to use resources to produce given good/services
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Factors that cause an economy to grow?
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-More labor -immigration -inventions -more resources -tax reductions
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Factors that cause an economy to decrease?
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-aging population -loss of land -labor inefficiency
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What are the 5 basic economic goals?
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-Efficiency -Freedom -Security -Equity -Growth
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What are some general goals in an economic system?
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-Environmental protection -Full employment -protecting national industries -healthcare
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What are the four types of economic systems?
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-Traditional -Market -Command -Mixed
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What is exchanged in a factor market?
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Firms pay households for land labor and capital and households supply them
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What is exchanged in a product market?
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Households pay firms for land labor and capital and firms supply them
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Why is economic equity so difficult to achieve in a free market economy?
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Differences in: motivation, skills, work, ethic, etc. equaling in different results
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Why do centrally planned economies have difficulty meeting consumer needs?
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A lack of competition means so businesses have little incentive. Bureaucracy is out of touch with the people.
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VIDEO ? Ted turner shouldn't have offered to donate one billion dollars to united nation charities.
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The United Nations have been known to embezzle their money. He's a great business man.
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VIDEO ? Mike Milken has done more good for more people than mother Theresa.
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Milken saved companies. He didn't give hand outs, he taught them to be successful. He helped create new businesses with junk bonds.
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Factor payments
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Income people receive when they contribute to the production process. ( land, labor, capital)
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Safety net
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Government programs to provide help during poor economic times. (Social security, workers comp)
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Standard of living
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A nations level of economic prosperity based on goods and services available to the people ( income, education, housing, health)
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Traditional economy
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Relies on habits, customs, and rituals to provide goods and services to the people (revolve around community and family)
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Market economy
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The goods and services produced are determined by the choices of the individuals in trade and exchange.
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Centrally planned economy (command economy)
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The goods and services produced/determined by the government
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Mixed economy
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A combination of a market economy (with individual choice) and a command economy (with some government control)
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Market
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A place where people buy and sell goods (eBay, stock market)
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Specialization
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The concept that each individual produces one or just a few goods and services. (Job, major in school)
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Household
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A person/group who live in the same residence who form a mini economy by having all the factors of production and who are also consumers
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Firm
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An organization that transfers inputs (land labor capital) into (outputs) goods and services
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Profit
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Financial gain made in a transaction
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Self interest
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The motive in all free market transactions serve as the motivating force of the market (greed is good)
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Competition
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The struggle between producers for the money of the consumers. Serves as the regulating force in the market.
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Invisible hand
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Term used to describe the self-regulating nature of the marketplace
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Consumer sovereignty
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The powers of the consumers to decide what gets produced
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Socialism
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Based on belief that democratic means should be used to evenly distribute wealth throughout society (social and political)
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Communism
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Characterized by a centrally planned economy with all economic and political power resting in the hands of the central government (political)
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Authoritarian
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Requiring a strict obedience to an authority such as a dictator
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Collectives
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Large farm leased to groups of farmers by the state
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Laissez faire
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Doctrine that states that government generally should not intervene in the market
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Free enterprise
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Characterized by private or corporate ownership of capital goods
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Continuum
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A range with no clear divisions
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Public policy
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Governments plan to address the needs of the people by supporting projects addressed in the market
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Interest group
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A private organization that tries to persuade public officials in a way to benefit their members (teacher unions, NRA)
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Public disclosure
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Require companies to provide information about their products and services to the consumers (cars,food)
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Poverty threshold
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An income level below that which is needed to support families or households (welfare)
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In-kind services
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Goods and services provided for free or reduced prices
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Market failure
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A situation where the free market doesn't distribute resources efficiently
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Public sector
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The part of the economy that involves the transactions of the government
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Private sector
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The part of the economy that involves the transaction of businesses
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Free rider
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Someone who wouldn't be willing to pay but will get the benefit anyway
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Macroeconomic
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Study of economic behavior and decisions in the whole economy
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Microeconomic
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Study of economic behavior and decision making in small units like households
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Gross domestic product
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Dollar value of all final goods and services produced in a year
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Business cycle
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A period of macroeconomic expansion or growth followed by one of contraction or decline
