Economics Unit – Flashcards
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study of how people or economic systems choose how to use their limited resources.
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economics
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what is the number one problem in economics that economic systems must address?
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scarcity
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permanant decision of unlimited wants and needs, but limited resources
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scarcity
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a temporary decision of unlimited wants and needs, but limited resources
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shortage
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a desire
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want
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survival characteristic in humans
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need
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tangible objects
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goods
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performed actions
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services
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what are the four factors of production?
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land, capital, labor, entrepreneurs
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gifts of nature or natural resources not created by man. Ex] forests, sun, climate, etc.
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land
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what are the three subunits to the capital factor of production?
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physical, financial, human
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subunit of the capital part of production; the tools, equipment, machinery, and factories used in production of goods and services. Ex] lumbar, cocaine, bricks
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physical
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subunit of the capital part of production; money used to purchase tools and equipment used in production
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financial
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subunit of the capital part of production; not the physical worker, but the mental part (skills and abilities). Ex] classes for teachers to improve their skills
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human
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people with all their efforts, abilities, and skills (excludes entrepreneurs)
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labor
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innovators responsible for much of the change in economy. these are risk takers in search of profits who does new and exciting things with existing resources.
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entrepreneurs
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what is the first of the three basic economic decisions that tries to make the best use of resources available, meets predicted wants of consumers, and is based on how much they think they can sell
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owners of resources must decide what and how much to produce
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what is the second of the three basic economic decisions that makes owners decide whether or not to use workers or machinery, decisions based on what costs the least, yet is effective, lasts change, or to buy or rent machinery
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owners of resources must decide how to produce goods and services
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what is the last of the three basic economic decisions where the public decide if goods and services should be equally distributed to all, ppl receive it if they want, or whether a small group of ppl should decide who receive it.
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society must decide who will get what is produced
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an economic term for a choice between two items because of scarcity
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trade-off
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term for the value of what you give up
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opportunity cost
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an example of an economic model used by ppl to make decisions; line on the curve that shows the maximum possible production
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production possibilities frontier
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graphs that show alternative ways of using a country's resources.
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production possibilities curve
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a term that means an economy is using resources in such a way as to maximize the production of goods and services
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efficiency
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term that means using fewer resources than it is capable of using
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underutilized
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a system that keeps the ways of the past maintained
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traditional
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a system that is reluctant to accept change
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traditional
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a system that usually has a low standard of living and lots of waste
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traditional
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a system that has few products and minimal variety
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traditional
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a system that produces lots of the same things
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traditional
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a system that has self-sufficiency
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traditional
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a system that is used in third world countries and latin america
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traditional
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a system that points on the needs of the state
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command
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a system that doesnt look at individual wants and has punishment for the people at times
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command
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a system that has little variety
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command
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a system with no private ownership and little waste
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command
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a system that has the wealth unevenly distributed
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command
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a system in old USSR, china, and Cuba
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command
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a system with a variety of products and with competition
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market
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a system in which the needs of the people are considered, and profits are given as an incentive
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market
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a system in which there are little government involvement
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market
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a system described in Adam Smith's The Wealth of Nations
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market
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a system used in Britain, France, and Sweden
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market
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a system with producers and consumers, where supply and demand controls the prices
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market
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a system that contains characteristics of a market economy, yet government has an active role
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mixed
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a system where producers still make decisions
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mixed
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a system where government guarantees competition and looks out for the consumer
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mixed
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a system where private property still exists
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mixed
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a system where the government does aid in income (USA)
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mixed
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this is an arrangement that allows buyers and sellers to exchange goods and services; people can exchange the things they have for the things they want.
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markets
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a term meaning that buyers and sellers are focused on personal gain; motivates consumers to buy goods and services at the lowest price possible
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self interest
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the struggle among producers for the dollars of consumers. it keeps prices low as firms attempt to make their prices attractive to consumers
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competition
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what two things make markets specifically function well?
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self interest and competition
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what are the two main parts of the free market
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factor and product market
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this is when firms purchase land, labor, and capital- the factors of production-from households.
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factor market
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these rent land, hire workers, and borrow money from investors.
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firms
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households purchase goods and services produced by firms
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product market
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what are two economic goals that are difficult to achieve in a pure market system.
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security and equity
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what helps an economy meet many economic goals by encouraging efficiency, economic freedom, innovation and growth.
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free market
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an economy in which the central government, rather than individual producers and consumers in markets, answers the key economic questions about production and consumption. it owns the land and capital, controls where people will work and their pay, what is produced and the price things will be sold.
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centrally planned economy
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what are our five national goals?
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eeconomic efficiency, economic growth, security/equity, individual freedom, stability
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using resources wisely so that ppl will be as well off as possible given our available resources
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economic efficiency
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expansion of economy to produce more goods, jobs, and wealth
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economic growth
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protecting ppl against poverty and supplying them with the means to provide for a medical emoergency thru an increasing number of gov social programs. it is also just and fair
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security/equity
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allows each member of society to enjoy the freedoms of enterprise, choicem, and private property and to make his or her own decisions in marketplace
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inidividual freedom
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reduce extreme ups and downs in the standard of living
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stability
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what are the six characteristics of the American Market Economy?
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limited role of gov, freedom of enterprise, freedom of choice, private property, profit incentive, and competition
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government serves to ensure national defense and keeping peace, but the gov does regulate bnusiness and provides public services
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limited role of gov
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individuals are allowed to own and control the factors of producton
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freedom of enterprise
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buyers should make the decisions about what should be produced
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freedom of choice
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what is owned by individuals or groups rather than by the fed, state, or local gov
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private property
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main motivator for business; the desire to make money moves people to produce thigns tha tother swant to buy
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profit incentive
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rivalry between products or sellers of similar goods to win more business by offering the lowers prices or better quality
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competition
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what shows the relationship between goods and services in the ecnomy?
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circular flow model
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to buy it
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price
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to make it
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cost
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price - cost
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profit
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consumers willingness to buy at each price level
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demand
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a table or t-chart of demands
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demand schedule
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demand graph; illustrates the quantities demanded at each price by consumers in teh market
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demand curve
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how much people are going to buy
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quantity demanded
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as price goes up, qd goes down; states that a good's price as an improttant effect on the amoun of tha tgood people will buy
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law of demand
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a negative curve including every single person
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market demand curve
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each additional item you buy has less usefulness to you, regardless of the price
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diminishing marginal utility
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refers to the degree to which a change in price affects the quanitty demanded
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elasticity of demands
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says that as the price of a good rises, people are more likely to substitute alternative goods
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substitution effect
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as the price of goods rise, people are likely to feel proorer. this effect atakes place when a consumer responds to a price increasie by spending more on that good, even though it was expensive
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income effect
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when prices change on a curve; going form one point on the supply/demand curve to a new point
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movement
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prices do not change on the new curve
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shift
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if the price is the same, and quantity demand changes, there are other factors reflected by a shift
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determinant of demand
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what are the four determinants of demand?
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income, taste, complementary goodssubstitute goods
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used together with another item
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complementary goods
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if this goes on sale, your items demand will go left on the curve.
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substitute goods
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all other things being constant
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ceteris paribus
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this is when income goes up and the quantity demanded goes up also
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normal good
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item where income goes up and quantity demanded actually goes down Ex] used cars, certain clothes
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inferior goods
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producers willingness to sell at each price level
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supply
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as price goes up, quantity supply goes up; tendency of suppliers to offer more of a good at a higher price
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law of supply
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how price change affects quantity supplied ex] based on how quickly the producers can respond to the price change; predicts how suppliers react to price changes
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elasticity of supply
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when producers have slow response time Ex] farmers who grow oranges in groves
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inelastic
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when producers have a fast response time Ex] movie burning
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elastic
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what are the four determinants of supply
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number of firms, taxes, technology, cost of production
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cost that does not change, no matter how much is produced. ex] machinery repairs and rent
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fixed cost
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cost that rises or falls depending on the quantity produced. Ex] costs of raw materials and labor
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variable cost
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fixed and variable costs are added together
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total cost
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change in output from adding one more worker
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marginal production of labor
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adding each worker whee workers will be able to specialize and gain skills
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increasing marginal returns
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at some point, adding each worker will result in this, where workers may bnee to wait to use a tool or machine. as more workers are added, there will be negative marginal returns
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diminishing marginal returns
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cost of producing one more unit of a good
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marginal cost
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revenue gained from producing one more unit of a good-usually the price of a unit
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marginal revenue
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government payment to support a business or market
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subsidy
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tax on the production or sale of a good, making it more expensive to produce regulation
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excise tax
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steps the gov takes to control production, affects supply
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regulation
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rising prices-producers often try to hold on to goods, reducing supply
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inflation
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amount of money the company receives by selling its good
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total revenue
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illustrates the quantity supplied by all producers in a market at different prices
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market supply curve
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quantity supply is equal to the quantity demanded; ideal point where buyers are willing to biy at the same price and quantity at which sellers are willing to sell.
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equilibrium market
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when QS is greater than QD; solution is to lower prices to increase demand, so there will be minimum waste
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surplus
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QS is less than QD
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shortage
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government regulations that says it is the lowest price you can charge Ex] minimum wage
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price floor
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if the price floor is above equilibrium price, you will always have a ___
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surplus
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if price ceiling is below equilibrium, you will always have a ___
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shortage
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quantity supplied does not equal the quantity demanded at a certain price
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disequilibrium
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governments may set this, a maximum price that can be charged Ex] rental apartments
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price ceiling
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in order for producers to make __, they must sell items at price higher than it cost for them to produce
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profit
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firms get materials for production from the __ market
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factor
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consumers buy materials from the __market
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product
