Economics Test Number One

Need
Something essential for survival.

Want
Something that people desire but that is not necessary for survival.

Goods
The physical objects that someone produces.

Services
The actions or activities that one person performs for another.

Scarcity
The principle that limited amounts of goods and services are available to meet unlimited wants.

Economics
The study of how people seek to satisfy their needs and wants by making choices.

Shortage
A situation in which consumers want more of a good or service than producers are willing to make available at a particular price.

Entrepreneur
A person who decides how to combine resources to create goods and services.

Factors of Production
The first task facing an entrepreneur.The resources that are used to make goods and services. The three main factors of production are land, labor, and capital.

Land
All natural resources used to produce goods and services.

Labor
The effort people devote to tasks for which they are paid.

Capital
Any human-made resource that is used to produce other goods and services.

Physical Capital
The human-made objects used to create other goods and services.

Human Capital
The knowledge and skills a worker gains through education and experience.

“Guns or Butter”
A phrase expressing the idea that a country that decides to produce more military goods has fewer resources to produce consumer goods and vice versa.

Opportunity Cost
The most desirable alternative given up as the result of a decision.

Trade-Off
The act of giving up one benefit in order to gain another, greater benefit.

Thinking at the Margin
The process of deciding whether to do or use one additional unit of some resource.

Cost/Benefit Analysis
A decision-making process in which you compare what you will sacrifice and gain by a specific action.

Marginal Cost
The extra cost of adding one unit.

Marginal Benefit
The extra benefit of adding one unit.

Economic System
the structure of methods and principles that a society uses to produce and distribute goods and services.

Factor Payment
The income people receive in return for supplying factors of production.

Profit
The amount of money a business receives in excess of ts expenses.

Safety Net
A set of government programs that protect people who face unfavorable economic conditions.

Standard of Living
Level of economic prosperity.

Innovation
The process of bringing new methods, products, or ideas into use.

Traditional Economy
An economic system that relies on habit, custom, or ritual to decide the three key economic questions.

Three Key Economic Questions
What goods and services should be produced? How should these goods and services be produced? Who consumes these goods and services?

What goods and services should be produced?
Each society must decide what to produce in order to satisfy the needs and wants of its people.

How should these goods and services be produced?
A society must also decide how to produce goods and services. Although there are many ways to produce goods and services, all require land, labor, and capital. These factors of production can be combined in different ways.

Who consumes these goods and services?
Societies also make decisions that determine how goods and services are consumed. They determine who consumes these goods and services by how societies distribute income.

Economic Efficiency
Because resources are always scarce, societies try to maximize what they can produce using the resources they have. If a society can accurately assess what its people need and want, it increases its economic efficiency.

Economic Freedom
In general, individual freedom is a key cultural value for Americans. Most people value the opportunity to buy what we can pay for, to seek work where we want, to own property, and to become entrepreneurs.

Economic Security
Ideally, economic system seek to reassure people that goods and services will be available when needed and that they can count on receiving expected payments on time.Most modern nations provide some level of base income for retired persons to ensure that they can support themselves. For example, American has “Well Fare” for people that need money, are laid off, don’t have a job, are disabled, or a single mom/dad.

Economic Equity
Each society must decide how to divide its economic “pie”. Should everyone get the same share of the goods and services a nation produces? This is up to the society.

Economic Growth
A nation’s economy must grow with its population so it can provide jobs for the new people joining the workforce. When that occurs, the nation improves its standard of living.

The Problem of Limits
People’s needs and wants are unlimited. When one want is satisfied, others arise. Sooner or later, a limit is always reached. The fact that limited amounts of goods and services are available to meet unlimited wants is called scarcity. Scarcity forces people to make choices.

Scarcity Versus Shortage
Scarcity is not the same thing as shortage. A shortage occurs when consumers want more of a good or service that producers are willing to make available at a particular price. Scarcity always exists. There simply are not enough goods and services to supply all of society’s needs and wants. This is because the resources that go into making those goods and services are themselves scarce.

Benefits of Capital
Capital is a key factor of production because people and companies can use it to save a great deal of time and money. Physical capital is such as machines and tools help workers produce goods and services more easily and at less cost. As a result, they become more productive. Human capital such as technical knowledge has the same result. The more skills a worker gains, the more productive he or she become.

Scarce Resources
All goods and services are scarce because the resources used to produce them are scarce.

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