Economics Unit 1 Flashcard
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need
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something essential for survival
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want
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something that we desire but that is not necessary for survival
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goods
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physical objects that someone produces
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services
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actions or activities that one person performs for another
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scarcity
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there are limited amounts of goods and services available to meet unlimited wants
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economics
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the study of how people seek to satisfy their needs and wants by making choices
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shortage
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occurs when consumers want more of a good or service than producers are willing to make available at a particular price
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entrepreneurs
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people who decide how to combine resources to create new goods and services
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factors of production
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the resources used to make all goods and services
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3 factors of production
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land, labor, capital
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land
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refers to all natural resources used to produce goods and services
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natural resources
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natural wealth of a country, consisting of land, forests, mineral deposits, water, etc.
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labor
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the effort people devote to tasks for which they are paid
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capital
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refers to any human-made resource that is used to produce other goods and services
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physical capital
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human-made objects used to create other goods and services
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capital goods
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another term used for physical capital
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human capital
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knowledge and skills a worker gains through education and experience
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productivity
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the quality, state, or fact of being able to generate, create, enhance, or bring forth goods and services
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trade-off
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the act of giving up one benefit in order to gain another, greater benefit
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domestic
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of or relating to the home, the household, household affairs, or the family
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"guns or butter"
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describes one of the common choices facing governments: choice between spending money on military or domestic needs
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opportunity cost
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most desirable alternative somebody gives up as the result of a decision
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decision-making grid
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helps to determine whether you are willing to accept the opportunity cost of a choice you are about to make
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thinking at the margin
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when you decide how much more or less to do
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cost/benefit analysis
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the decision-making process where decision makers have to compare the opportunity costs and the benefits- what they will sacrifice and what they will gain
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marginal cost
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the extra cost of adding on unit
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marginal benefit
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the extra benefit of adding the same unit
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production possibilities curve
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a graph that shows alternative ways to use an economy's productive resources
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production possibilities frontier
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line that shows the combinations of the production of goods
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efficiency
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the use of resources in such a way as to maximize the output of goods and services
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inefficiently
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resources are not used in a way that maximizes the output of goods and services
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underutilization
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the use of fewer resources than the economy is capable of using
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law of increasing costs
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principle that states that as production shifts from making one item to another, more and more resources are necessary to increase production the the second item
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2 reasons for economic growth
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technology and training
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3 basic economic questions
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1. What goods and services should be produced? 2. How should these goods and services be produced? 3. Who consumes these goods and services?
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economic system
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the structure of methods and principles a society uses to produce and distribute goods and services
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factor payments
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the income people receive in return for supplying factors of production
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profit
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the amount of money a business receives in excess of its expenses
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Economic Goals of Society (5)
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efficiency, freedom, security, equity, growth
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security
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the feeling of being safe
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safety net
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set of programs to protect people who face unfavorable economic conditions
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equity
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fairness
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standard of living
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level of economic prosperity
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innovation
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process of bringing new methods, products, or ideas into use
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Industrial Revolution
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set in the 1700s and 1800s, where innovations in technology increased the efficiency of production and introduced new goods and services
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traditional economy
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relies on habit, customs, or ritual to answer the three basic economic questions; little room for innovation or change
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centrally planned economy
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the government, rather than the individual producers and consumers, answers the three basic economic questions
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bureaucracy
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government by many administrators
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consumer sovereignty
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consumers have the power to decide what gets produced
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Socialism
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not a single economic system, but a range of economic and political systems based on the belief that wealth should be evenly distributed throughout society
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Communism
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central government owns and controls all resources and means of production and makes all economic decisions
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Karl Marx
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German philosopher who is known as the founder of communism through his writings
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authoritarian
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governments limit individual freedoms and require strict obedience from their citizens
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Soviet Union Economy
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World's first communist state; wanted to build national power and prestige; focused on heavy industry and military
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China Economy
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started building small factories; forced peasants to farm; government owns firms and major industries
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4 Disadvantages of Centrally Planned Economy
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1. Government owns all production factors- workers lack incentive to work faster or produce more. 2. Sacrifice of individual freedoms in order to pursue economic goals. 3. Lack of innovation; discourage change, little growth 4. Rare that these is equity in the distribution of goods even though this is a goal
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Adam Smith
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Scottish social philosopher who realized that people try to pursue their own self-interests
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laissez faire
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doctrine that government generally should not intervene in the marketplace
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property rights
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legal right to a particular property
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private property
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property owned by individuals or companies and not by the government or the people as a whole
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intellectual property
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books, songs, movies people have created
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redistribution of income
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taking money and giving it out to others to try and make things more fair for others in society
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mixed economy
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an economic system that has some market-based elements and some government involvement
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factor market
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firms purchase factors of production from households
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product market
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households buy the goods and services that firms produce
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economic transition
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period in which a nation moves from one economic system to another
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privatization
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selling enterprises operated by the government to individuals, and then allowing them to compete in the marketplace
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market
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any arrangement that allows buyers and sellers to exchange things
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specialization
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concentration of the productive efforts of individuals and businesses on a limited number of activities
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specialization and efficiency
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becoming good at one task to then produce this faster and with a resources without waste
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primitive cultures
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earliest existing groups
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free market economy
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answers the three basic economic questions are made by voluntary exchange in markets
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free enterprise
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another name for free market economy
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capitalism
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another name for free market economy
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household
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a person or group of people living in a single residence
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firm
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an organization that uses resources to produce a product or service, which it then sells
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The Wealth of Nations
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book written by Adam Smith describing how markets function
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self-interest
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personal gain
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incentive (+,-)
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the hope of reward or fear of penalty that encourages a person to behave in a certain way
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competition
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the struggle among producers for the dollars of consumers
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Invisible Hand
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self-regulating mechanism in the marketplace
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4 Advantages of Free Market
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1. Can respond rapidly to changing conditions 2. Workers can work where they want, firms can produce what they want and individuals can consumer what they want; freedom 3. Encourages growth through entrepreneurship 4. Wide variety of goods; consumer sovereignty
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corporate ownership
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Big business owns
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general welfare
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best for the people
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regulations
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law, rule, or other order prescribed by authority
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foreign investment
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Flows of capital from one nation to another in exchange for significant ownership stakes in domestic companies or other domestic assets.
