ECONOMICS UNIT 1: EXAM REVIEW Essay

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Profit motive
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The driving force that encourages people, businesses and organizations to improve their material well-being.
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Open opportunity
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The principle/concept that everyone has the ability to compete in the marketplace.
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Legal equality
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The concept that everyone has the same economic rights under the law.
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Private property rights
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The principle that people have the right to control their possessions and use them as they wish.
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Free contract
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The principle that people may decide what agreements they want to enter into.
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Voluntary exchange
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The act of buyers and sellers freely and willingly engaging in market transactions.
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Competition
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A situation that occurs when there are many buyers and sellers acting independently, so that no one has the ability to influence the price at which the product is sold in the market. The businesses that provide a good or service that is SIMILAR to another business. Businesses that COMPETE to gain consumers and sales. -Think RIVALRY
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Interest group
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A collection of people who share a common interest or attitude and seek to influence government for specific ends. Interest groups usually work within the framework of government and try to achieve their goals through tactics such as lobbying.
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Public disclosure laws
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Laws requiring companies to provide information about their products or services.
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Public interest
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The concerns of the public as a whole.
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Macroeconomics
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A branch of economics that deals and concentrates with the economy as a whole. – The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
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Microeconomics
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The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices. – The study of behavior and decision making of small units such as individuals -small consumers and businesses
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Gross domestic product
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GDP The total value of goods and services produced within the borders of a country during a specific time period, usually one year.
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Business cycle
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Fluctuations in economic activity, such as employment and production; expansion and contraction.
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Work ethic
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The belief that work itself has moral value. The commitment to the value of work and purposeful activity.
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Technology
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Knowledge that people use to make a way of life in their surroundings. -Such as Radio, television, and the internet
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Public good
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Goods that can be consumed by one person, without preventing the consumption of the good by another. -foods, such as clean air and clean water, that everyone must share
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Public sector
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The part of the economy that is under control of the government. examples may include state health and education services, the emergency services and roading infrastructure.
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Private sector
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The part of the economy that involves the transactions of individuals and businesses. -Not associated with government agencies
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Free rider
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People who benefit from an interest group without making any contributions. Labor unions and public interest groups often have a free-rider problem because people can benefit from the group’s activities without joining.
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Market failure
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Occurs when the market fails to allocate resources efficiently, or to provide the quantity and combination of goods and services mostly wanted by society. There is either an underallocation or an overallocation.
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Externality
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An economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume.
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Poverty threshold
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An income level below which income is insufficient to support families or households.
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Welfare
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Government aid to the poor.
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Cash transfers
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Direct payments of money by the government to those who are poor, disabled, or retired.
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In-kind benefits
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Non-cash goods and services provided to needy individuals and families by the federal government. -Either provided for free or at reduced prices
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Economic system
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The method used by a society to produce and distribute goods and services.
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Factor payments
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The income people receive for supplying factors of production, such as land, labor, or capital.
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Patriotism
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Love for one’s country and the willingness to sacrifice, defend, and give support for it. -think LOYALTY
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Safety net
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Government programs that protect people experiencing unfavorable economic conditions.
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Standard of living
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Level of economic prosperity.
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Traditional economy
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Economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services.
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Market economy
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Economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets. – System in which individuals own the factors of production and make economic decisions through free interaction.
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Centrally planned economy
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Economic system in which the central government makes all decisions on the production and consumption of goods and services.
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Command economy
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Economic system in which a central authority is in command of the economy; a centrally planned economy.
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Mixed economy
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Market-based economic system with limited government involvement.
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Market
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An arrangement that allows buyers and sellers to exchange things.
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Specialization
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The concentration of the productive efforts of individuals and firms on a limited number of activities.
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Household
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A person or group of people living in the same residence.
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Firm
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An organization that uses resources to produce a product to sell.
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Factor market
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Market in which firms purchase the factors of production from households.
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Profit
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The financial gain made in a transaction.
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Product market
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The market in which households purchase goods and services that firms produce.
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Self-interest
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One’s own personal gain.
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Incentive
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An expectation that encourages people 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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The self-regulating nature of the marketplace.
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Consumer sovereignty
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The power of consumers to decide what gets produced.
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Socialism
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Social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society.
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Communism
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Political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government.
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Authoritarian
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Requires strict obedience to an authority, such as a dictator.
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Collective
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Large farm leases from the state to groups of peasant farmers.
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Heavy industry
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Industry that requires a large capital investment and that produces items used in other industries.
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Laissez faire
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The doctrine that states that government generally should not intervene in the marketplace.
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Private property
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Property owned by individuals or companies, not by the government or the people as whole.
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Free enterprise
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An economic system characterized by private or corporate ownership of capital goods; investments that are determined by private decision rather than by state control; and determined in a free market.
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Continuum
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A range with no clear divisions.
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Transition
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Period of change in which an economy moves away from a centrally planned economy toward market-based system.
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Privatize
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To sell to individuals state-run firms, which are then allowed to compete with one another in the marketplace.
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Need
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Basic requirement/something needed for survival. EG: something like air, food, or shelter that is necessary for survival Think BASIC NECESSITIES
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Want
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An item that we desire but that is not essential to survival. EG: jewelry, etc. Think OTHER THAN NECESSITIES
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Economics
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The study of how people see to satisfy their needs and wants by making choices.
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Goods
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Items purchased to satisfy needs and wants. – Physical objects such as clothes or shoes.
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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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A situation in which unlimited wants exceed the limited resources available to fulfill those wants. – Limited quantities of resources to meet unlimited wants.
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Shortage
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A situation in which quantity demanded is greater than quantity supplied. – A situation in which a good or service is unavailable.
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Factors of Production
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Land, labor, and capital; the three groups of resources that are used to make all goods and services.
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Land
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All natural resources used to produce goods and services.
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Labor
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The effort that people devote to a task for which they are paid. INCLUDES efforts, abilities, and skills
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Capital
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Any human-made resource that is used to create other goods and services. – Based on private property and free enterprise.
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Physical capital
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One of the factors of production, which is itself produced (it doesn’t occur naturally), used to produce goods and services; includes machinery, tools, factories, buildings, road systems, airports, telephone supply lines, etc. Also referred to as ‘capital’, or ‘capital good’ or ‘investment good.’ SIMPLIFIED: all human-made goods that are used to produce other goods and services; tools and buildings
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Human capital
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The value skills integrated into labor through education, training, knowledge, and health. An important determinant of aggregate supply and the level of economic growth in a nation. Think SKILLS FROM EDUCATION AND EXPERIENCE
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Entrepreneur
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Ambitious leader who combines land, labor, and capital to create and market new goods and services. – A person who organizes, manages, and takes on the risks of a business. (Taking time and money)
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Trade-off
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An exchange of one thing in return for another; especially relinquishment of one benefit or advantage for another regarded as more desirable. – An alternative that we sacrifice when we make a decision.
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Guns or butter
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A phrase that refers to the trade-offs that nations face when choosing to produce more or less military or consumer goods. – A notion about the relationship between a nation’s investment in defense (guns) and civilian (butter) spending.
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Opportunity cost
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The most desirable alternative given up as the result of a decision.
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Thinking at the margin
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Deciding whether to do or use one additional unit of some resource.
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Production possibilities curve
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A graph that shows alternative ways to use an economy’s resources.
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Production possibilities frontier
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The line on a production possibilities graph that shows the maximum possible output.
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Efficiency
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Using resources in such a way as to maximize the production of goods and services.
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Underutilization
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Using fewer resources than an economy is capable of using.
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Cost
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The alternative that is given up because of a decision.
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Law of increasing costs
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As we shift factors of production from making one good or service to another, the cost of producing the second item increases.

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