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Economics

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study of how people and societies use limited resources to satisfy unlimited wants; the management of scarcity and choice

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Scarcity

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Limited quantities of resources to meet unlimited wants

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Consumer behavior

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consists of the actions a person takes in purchasing and using products and services, including the mental and social processes that come before and after these actions.

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Adam Smith

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1723-1790. Pioneering economic theorist. Father of Economics. Wrote Wealth of Nations. Explained how rational self-interest and competition, operating in a social framework which ultimately depends on adherence to moral obligations, can lead to economic well-being and prosperity.

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Standard of Living

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Quality of life based on ownership of necessities and luxuries that make life easier.

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Free Market

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An economic system in which prices and wages are determined by unrestricted competition between businesses, without government regulation or fear of monopolies.

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laissez faire

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The idea that government should not interfere with or regulate industries and businesses

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Macroeconomics

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the part of economics concerned with large-scale or general economic factors, such as interest rates and national productivity.

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Microeconomics

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Study of a single factor of an economy - such as individuals, households, businesses, & industries - rather than an economy as a whole.

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Normative Economics

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The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.

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Goods

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Physical articles that have been produced for sale or use. Three examples are food, clothing, and cars

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Services

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Work that is performed for someone else, for which a consumer, business, or govenment is willing to pay. s

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Factors of Production

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Resources needed to produce goods and services, land, labor, and capital;

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Entrepreneurship

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one of the factors of production that involves taking the actions and risks necessary to produce a new product or business

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Productivity

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A measure of the goods and services produced within a particular country. This is often expressed as the quantity produced per person per hour.

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Opportunity cost

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Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

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Production of Possibilities Frontier

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The graphical representation of the combinations of two goods and/or services that can be produced by an economy when using resources efficiently.

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Need

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Something needed for survival, something such as air, food, or shelter.

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Want

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A good or item that is desired, yet it is not essential.

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Factors of Production

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These include land, labor, entrepreneurship, and capital. In order to make a good or service, it is necessary to have these.

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Physical Capital

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The tools, machines, and goods that are necessary to produce other goods and services that are owned by a business. This also includes money and infrastructure, such as office or manufacturing buildings.

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Human Capital

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The sum total of all the skills, knowledge, ingenuity, and expertise of the people who work for a business. People acquire skills through education, experience, and training.

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Private Property

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A concept giving people the right to control their possessions as they wish; characteristic of capitalism or free enterprise.

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Consumer Goods

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Goods intended for final use by individuals.

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Capital Goods

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Manufactured goods used to produce other goods and services.

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Capital

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Money or assets that are put to use for economic reasons. This includes the factors of production, and other assets of a particular firm.

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Opportunity Cost

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The cost of the next best alternative use of money, time, or resources when one choice is made rather than another.

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Surplus

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The excess amount left over when the amount supplied exceeds the amount demanded in a market.

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The Invisible Hand

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The phrased coined by Adam Smith to describe the way that the marketplace acts in a self-regulatory fashion, wherein problems and issues in the market will ultimately self-correct. The implication is that government intervention is harmful because it interferes with the market.

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Free Market Economy

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In this type of economy, voluntary exchanges are occurring through a market arrangement. Individuals have the freedom to buy and sell, and the government does not regulate the market.

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Mixed Economy

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An economic system that combines elements of a free market and a centrally-planned economy. As we studied, China and the U.S. both have mixed economies, though China's is far more controlled and has only special zones with free market principles.

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Command Economy (Centrally-Planned Economy)

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When the government controls the factors of production and designates what will be produced, how much, and for whom. The government has great control in this system and the market is not free.

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Entrepreneurs

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People with ambition, skill, and creativity, who combine land, labor, and capital to create and market new services or goods.

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Competition

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The struggle among producers for the business of consumers. This often leads to lower prices, better quality, and a better atmosphere for consumers. The government encourages competition and imposes laws regulating companies that dominate the market.

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Laissez-faire

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The idea that the government shouldn't intervene in the market. "Let them do as they please."

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Communism

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The political structure that is used in conjunction with a centrally-planned economy, wherein the central government retains decision-making power that affects the economic nature of the country. These are usually strict and authoritarian, as in the Soviet Union.

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Problems of a Centrally Planned Economy

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1. Lack of incentive 2. Less innovation 3. Individuals have less freedom 4. Entry into the market is difficult 5. Less flexibility 6. Consumer wants frequently go unmet

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Privatization

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The process of transferring things that are owned by the government to individuals or firms. This happens when a country experiences a transition, such as when things in a formerly centrally-planned economy shift to being privately owned in a market economy.

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The Law of Demand

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The principle that consumers will buy more of a good when its price decreases and less as it increases. Consumers will seek lower prices and buy more at those points. Thus, there is an inverse relationship between price and quantity demanded.

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The Law of Supply

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This states that suppliers offer more of a good when prices increase, and conversely, they offer less at lower prices.

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Economy of Scale

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When a firm increases output and the scale of their operation to the point that the average cost of production for each unit falls and keeps falling as they scale up. Fixed costs are spread over more units, and profitability is easier. This gives that firm an enormous advantage in terms of price. (Wal-Mart is a good example in the retail sphere) *However, occasionally a diseconomy of scale occurs when the organization gets too large because it is more difficult to manage as it grows.

Mr. Cox Economic and Personal Financial Literacy Final Exam – Flashcards

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