Foundations of Economics – Flashcards
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Want
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goods that are purchased to add comfort or pleasure to life
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Need
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basic requirements for human survival
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Scarcity
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a situation in which unlimited wants exceed the limited resources available to fulfill those wants
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Economics
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study of how humans make decisions and choices under unlimited wants and resources
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Goods
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items purchased to satisfy needs or wants
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Services
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actions or activities that one person performs for another
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Consumer
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a person who purchases goods and services for personal use
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Producer
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a person, company, or country that makes, grows, or supplies goods or commodities for sale
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Factors of Production
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resources, or inputs, used to produce goods and services: land, labor, capital, entrepreneurship
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Land
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any natural resource provided by nature and used in the production process
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Labor
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human effort directed toward producing goods and services
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Capital
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any human made resource that is used to create other goods and services
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Entrepreneurship
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the ownership, organization, and management of business
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Incentives
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factors that motivate a person to act or exert effort
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Utility
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the quality of brining satisfaction or happiness
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Economize
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to spend less
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Trade-Off
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alternatives that must be given up when one is chosen rather than another
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Opportunity Cost
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the value of the next best alternative that must be sacrificed to obtain something else
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Cost-Benefit Analysis
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comparing the total expected cost of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much
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Marginal Cost
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the opportunity cost of one unit increase in an activity; what you must give up to get one additional unit of it
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Marginal Benefit
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the benefit of one unit increase in an activity; what you get when you get one more unit of something (measured by what you are willing to give up to get one more unit of it)
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Production Possibilities Curve (PPC)
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a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors
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Efficiency
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the state or quality of being efficient
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Underutilization
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using fewer resources than an economy is capable of using
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Law of Increasing Opportunity Cost
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law that states that 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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Economic System
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a system of production and exchange of goods and services as well as allocation of resources in a society
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Traditional Economy
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an economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next
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Command Economy
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an economic system in which the government controls a country's economy
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Market Economy
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economic decisions are made by individuals or the open market
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Centrally Planned Economy
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an economy in which the government decides how economic resources will be allocated
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Socialism
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a system in which society, usually in the form of the government, owns and controls the means of production
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Communism
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a theory or system of social organization based on the holding of all property in common, actual ownership being ascribed to the community as a whole or to the state
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Laissez-faire
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hands off. No government intervention in business
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Capitalism
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an economic system based on private ownership of capital
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Voluntary Exchange
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a situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction
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Consumer Sovereignty
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the role of consumer as the ruler of the market, determining what products will be produced
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Specialization
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a situation in which different people each engage in a different task
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Circular Flow Model
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a model of economy that shows the circular flow expenditures and incomes that result from decision makers' choices and the way those choices interact to determine what, how, and for whom goods and services are produced
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Product Market
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the market in which households purchase the goods and services that firms produce
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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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Mixed Economy
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an economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.
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Profit Motive
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desire to make money that motivates people to produce and sell goods and services
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Modified Free Enterprise Economy
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a type of mixed economy which includes some government protections, provisions, and regulations to adjust the free enterprise system
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Market Failure
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people who are not part of a marketplace interaction benefit from it or pay part of the costs
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Externality
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a side effect of transaction that affects someone other than the producer or the buyer
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Negative Externally
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an externality that is a negative effect, or cost, for people who were not involved in the original economic activity
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Positive Externality
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an externality that is a positive effect, or benefit, for people who were not involved in the original economic activity
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Subsity
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a government payment that helps cover the cost of an economic activity that is considered to be in the public interest
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Transfer Payment
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transfer of income from one person or group to another even though the receiver does not provide any goods or services in return
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Public Transfer Payment
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a payment in which the government transfers income from taxpayers to recipients who do not provide anything in return
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Which statement best describes the impact of scarcity? a. People are able to meet most of their needs. b. Consumers must pay higher prices for many items. c. Governments must try to meet the wants of citizens. d. Economies can work to provide more goods and services.
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b. Consumers must pay higher prices for many items.
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Which object is likely to have the most value based on the concept of scarcity? a. a flowering plant b. a new coffee table c. a silver necklace d. a crop of oranges
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c. a silver necklace
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A basic concept in economics is that all resources are a. limited. b. allocated. c. valuable. d. renewable.
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a. limited
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A need is fulfilled by a. video games b. food c. jewelry d. movie tickets
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b. food
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The ongoing tension of not having enough resources to meet human wants is called a. need b. scarcity c. shortage d. surplus
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b. scarcity
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The human time, effort, and talent that go into the making of products is called a. capital b. knowledge c. scarcity d. labor
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d. labor
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Which of the following is not an essential economic question? a. For whom will it be produced? b. What will be produced? c. How will it be produced? d. At what cost will it be produced?
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d. At what cost will it be produced?
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"There is no such thing as a free lunch."
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This is implies that every choice involves costs. Costs can take the form of money, time, or some other thing of value. We must apply this concept in terms of looking at opportunity costs and trade-offs.
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Benefits offered to encourage people to act in certain ways are a. incentives b. motives c. utilities d. wants
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a. incentives
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The benefit or satisfaction gained from the use of a good or service is called a(n) a. cost b. incentive c. utility d. desire
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c. utility
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The alternative you give up when you make an economic choice is a(n) a. compromise b. option c. trade-off d. utility
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c. trade-off
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The value of what you give up by choosing one alternative over another is called a. marginal benefit b. marginal cost c. opportunity benefit d. opportunity cost
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d. opportunity cost
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An example of a trade-off is a. giving up going to a movie to spend time shopping b. giving up going to a movie because it received bad reviews c. going to a movie to see your favorite movie star d. going to a movie because it received good reviews
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a. giving up going to a movie to spend time shopping
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PPC is an acronym for a. preliminary production chart b. preliminary production curve c. production possibilities chart d. production possibilities curve
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d. production possibilities curve
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When creating a PPC, economists assume that a. resources are not fixed b. resources are inefficiently used c. only three things can be produced d. technology is fixed
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d. technology is fixed
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The condition in which economic resources are not being used to their full potential is called a. efficiency b. scarcity c. utilization d. underutilization
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d. underutilization
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Any point outside the curve of a PPC represents a goal that is a. impossible to meet because resources are fixed b. impossible to meet because resources are not fixed c. possible to meet because resources are fixed d. possible to meet because resources are not fixed
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a. impossible to meet because resources are fixed
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How does a production possibility curve assist in outlining opportunity cost? a. It compares profit potential of one product to another. b. It compares production cost of one product to another. c. It compares production numbers of one product to another. d. It compares consumer demand of one product to another.
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c. It compares production numbers of one product to another.
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The most common economic system in the world is a a. closed economy. b. command economy. c. market economy. d. traditional economy.
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c. market economy.
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Which statement best describes a command economy? a. Government intervention in economic choices is strictly forbidden. b. The government determines economic choices and makes most decisions. c. The decisions made by producers and consumers drive all economic choices. d. Producers and consumers make some economic choices while the government makes others.
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b. The government determines economic choices and makes most decisions.
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Which statement best describes a pure market economy? a. Producer intervention in economic choices is strictly forbidden. b. The government determines economic choices and makes most decisions. c. The decisions made by producers and consumers drive all economic choices. d. Producers and consumers make some economic choices while the government makes others.
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c. The decisions made by producers and consumers drive all economic choices.
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Which statement best describes a mixed market economy? a. Consumer intervention in economic choices is strictly forbidden. b. The government determines economic choices and makes most decisions. c. The decisions made by producers and consumers drive all economic choices. d. Producers and consumers make some economic choices while the government makes others.
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d. Producers and consumers make some economic choices while the government makes others.
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What is one example of a traditional economy? a. a barter system that does not rely on money or other currency b. a restricted system that blocks trade with international partners c. a self-sufficient system that isolates a community from the world d. a goods-based system that relies on manufacturing and production
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a. a barter system that does not rely on money or other currency
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The goal of a command economy is to a. sustain self-sufficiency. b. preserve traditional customs. c. create equality within a society. d. promote free economic choices.
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c. create equality within a society.
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A command economy tends to exist under a a. socialist government that provides a lot of regulation. b. communist government that provides little regulation. c. democratic government that provides some regulation. d. representative government that provides no regulation.
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a. socialist government that provides a lot of regulation.
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Which nation has a communist command economy? a. Cuba b. North Korea c. South Korea d. the United States
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b. North Korea
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How does the economy of Cuba differ from the economy of North Korea? a. In North Korea, the government's control of the economy has begun to loosen. In Cuba, the government maintains a tight hold over the economy. b. In Cuba, the government's control of the economy has begun to loosen. In North Korea, the government maintains a tight hold over the economy. c. In North Korea, there is economic uncertainty in exchange for individual choice. In Cuba, there is economic security in exchange for government control. d. In Cuba, there is economic uncertainty in exchange for individual choice. In North Korea, there is economic security in exchange for government control.
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b. In Cuba, the government's control of the economy has begun to loosen. In North Korea, the government maintains a tight hold over the economy.
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The citizens of the United States live and work in a a. closed economy. b. command economy. c. mixed market economy. d. pure market economy.
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c. mixed market economy.
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In free-enterprise systems around the world, there are a. no restrictions on business ownership or business activity. b. some restrictions on business activity but not on business ownership. c. some restrictions on business ownership but not on business activity. d. some restrictions on business ownership and business activity.
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d. some restrictions on business ownership and business activity.
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What kind of economy uses a free-enterprise system? a. a closed economy b. a command economy c. a market economy d. a traditional economy
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c. a market economy
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In a free-enterprise system, consumers decide a. how to set prices. b. which goods to export. c. how to use materials. d. which services to buy.
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d. which services to buy.
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In a free-enterprise system, producers decide a. how much to charge. b. which services to buy. c. where to shop for goods. d. which goods interest them.
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a. how much to charge.
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Competition happens when two or more businesses a. complement one another. b. fight for the same benefit or gain. c. work together to achieve success. d. follow regulations from an agency.
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b. fight for the same benefit or gain.
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Which situation is the best example of competition in an economic system? a. A restaurant just opened down the block from a movie theater, and the restaurant owner hopes to attract diners after each movie. b. A small CD store slashed its prices to attract customers from a larger store that sells CDs and DVDs. c. A store that sells sneakers has offered a special deal to customers from a nearby health club. d. A federal agency has been created to monitor the production and distribution of food supplements.
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b. A small CD store slashed its prices to attract customers from a larger store that sells CDs and DVDs.
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In a competitive market, a furniture company decides to use cheaper materials to decrease production costs and pass on the savings. This is an example of a. following a federal regulation. b. lowering prices for customers. c. reducing the risk for consumers. d. creating a new or better product.
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b. lowering prices for customers.
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Innovation allows producers to a. create goods that draw consumer attention. b. follow restrictions that the government imposes. c. avoid competing with similar businesses. d. offer warranties for all of their products.
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a. create goods that draw consumer attention.
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Which situation is the best example of regulation in an economic system? a. A retail business just opened a new store in a community close to its original location. b. A small clothing shop slashed it prices to attract customers from a larger department store nearby. c. A farmers' market has offered a special deal to customers from a nearby yoga school. d. A state agency has been created to monitor the production and distribution of sports drinks.
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d. A state agency has been created to monitor the production and distribution of sports drinks.
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Three Basic Economic Questions
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What will be produced? How will it be produced? For Whom will it be produced?
