Economics Final Study Guide (Part 1)

Scarcity
limited quantities of resources to meet unlimited wants

Shortage
a situation where a good or service is unavailable

Land
natural resources used to make goods/services ex. fertile land for farming

Labor
the effort that people devote to a task for which they are paid ex. medical aid provided by a doctor

Capital
any human made resource used to create other goods/services ex. buildings, tools, and knowledge

Guns and Butter
a phrase that refers to the trade offs that nations face when deciding whether to produce more or less of consumer or military goods ex. bread or tanks

Oppurtunity Cost
the most desirable alternative given up as a result of a decision ex. sleep late or wake uo early for a ski trip

Trade-offs
an alternative we sacrifice when making a decision ex. spend more time working and miss watching a basketball game

Thinking at the Margin
deciding whether to do/use one additional resource ex. waking up an hour early to study and getting a better grade on the test

Production Possibilities Curve
a graph that shows alternative ways to use an economy’s resources

Production possibilities frontier
the line on a production possibilities graph that shows the maximum possible output

Efficiency
using resources in such a way as to maximize the production of goods/services

Underutilization
using fewer resources than an economy is capable of using

3 Key Economic Questions
what goods/services should be produced, how should these goods/services be produced, and who consumes these goods/services

Factor Payments
Income people recieve for supplying factors of production such as land, labor, or capital.

Traditional Economy
An economic system that relies on habit, custom, or ritual, to decide the question of production/consumption of goods/services

Market Economy
Eco. system in which decisions on production/consumption of goods/services are based on voluntary exchange in markets

Centrally Planned Economy
economic system in which the central government makes all decisions on the production/consumption of goods/services

Command Economy
similar to a Centrally Planned, economic system in which a central authority is in command of the economy

Mixed Economy
market based economic system with limited government involvement

Free Enterprise system
economic system characterized by private and corporate ownership of capital goods; investments that are determined by private decision rather than by state control

Self Interest
one’s own personal gain (motivating force of free market)

Specialization
the concentration of the productive efforts of individuals and firms on a limited number of activities

Public Disclosure Laws
laws requiring companies to provide full inforation about their products

Indicators of Economic Stability
1. general Price Levels 2. Health of Financial Institutions

Gross Domestic Product
total value of all final goods and services produced in an economy

Technology
the process used to produce a good/service

Macroeconomies
the study of behavior and decision making of entire economies

Microeconomics
the study of economic behavior and decision making of small units; individuals, families, small businesses

Externalities
economic side effect of a good/service that generates benefits or costs to someone other than the person deciding how much to produce/consume

Safety Net
welfare that protects people from losing homes/necessities

TANF
Temporary Assistance for Needy Families replaced ADFC

Law of Demand
consumers buy more of a good when the price decreases (result of substitution effect + income effect)

Substitution Effect
consumer reaction to an increase in price by consuming less of that good and more of other goods

Income Effect
the change in consumption resulting from a change in real income

Demand Curve
a graphic representation of demand schedule (table that lists the quantity of a good all consumers in a market will buy at each diff. price)

Reasons for Demand Shift
Income, Consumer Expectations, Population, Consumer Tastes/Advertising

Complements
2 goods used and bought together ex. (Ski’s and Ski boots)

Substitutes
goods that can be used in place of another

Elastic Demand
demand that is sensitive to a change in price

Inelastic Demand
demand that is not sensitive to a change in price