Get ahead with a $300 test prep scholarship
| Enter to win by Tuesday 9/24
Economics Unit 1
Terms in this set (38)
The study of how people choose to use their limited resources to satisfy their unlimited wants.
A system used to manage limited resources for the production, distribution, and consumption of goods and services.
The branch of economics that uses objective analysis to find out how the world works. The goal is to describe how things are.
The branch of economics that applies value judgements to data in order to recommend actions or policies. The goal is to advise how things ought to be done.
The condition that results because people have limited resources but unlimited wants.
The exchange of one benefit or advantage for another that is thought to be better.
A way to compare the costs of an action with the benefits of that action. If benefits exceed costs, then the action is worth taking.
Any factor that encourages or motivates a person to do something. Prices, taxes, and laws create incentives that influence how people behave.
Looks at economic decision making by individuals, households, and businesses.
Focuses on the workings of an economy as a whole.
7 Principles that Guide Economic Way of Thinking
Scarcity forces tradeoffs, costs versus benefits, thinking at the margin, incentive matter, trade makes people better off, markets coordinate trade, future consequences count.
Physical articles that have been produced for sale or use. (Food, clothing, cars)
Work done by someone else for which a consumer, business, or government is willing to pay.
Factors of Production
The resources used to produce goods and services. CELL; capital resources, entrepreneurs, land, labor.
The willingness and ability to take the risks involved in starting and managing a business.
The tools, machines, and buildings used to produce goods and services.
A measure of the efficiency with which goods and services are produced. Productivity is often stated as the quantity produced per person per hour.
The value of the next best alternative that is given up when making a choice. This is the measure of what you must give up to get what you most want.
Production Possibilities Frontier (PPF)
A simple model of an economy that shows all the combinations of two goods that can be produced with the resources and technology currently available.
Differences between shortages and scarcity.
Shortages are temporary while scarcity is forever.
The satisfaction or pleasure one gains from consuming a product or service or from taking an action.
Describe how households, businesses and government address the concept of scarcity and be able use an example of each.
Households, businesses and government confront unlimited wants when faced with limited resources by dealing with choices. Every choice that is made is weighed by assessing the associated cost and benefits attached with each decision. For each decision an opportunity cost is incurred- that is to say- the value of the goods and services one must give up when a choice has been made.
How do scarcity, choice, and opportunity costs influence the decisions of individuals?
Every decision we are forced to make is a result of scarcity. If everything we wanted was at our fingertips. we would not have to choose. But, since we all have unlimited wants in a world of scarce resources, we must choose. Every choice involves refusing something else, incurring an opportunity cost.
What does it mean to think like an economist?
Thinking like an economist means recognizing that there is a systematic and scientific way of studying the field of economics. Economists realize that there are many questions about economic behavior that can be explained, there is a benefit to attempting to make predictions about economic behavior, and that recommendations can be made to policy makers.
How does thinking at the margins influence the behavior of individuals?
People's behaviors are directly affected by their consideration of marginal benefits and marginal costs in making decisions. The expected costs and benefits of consuming the next unit of a good or service are considered prior to that decision. s long as marginal benefits exceed marginal costs, the action/behavior should be continued.
Why do households, businesses, and government produce particular goods/services?
The decision to produce a particular good or service is dependent on the opportunity costs of available resources. Decisions are generally made to produce goods based on the opportunity cost required to produce another good.
What tools can be used and how can they be used to measure what is gained and lost when choices are made?
Production Possibilities Frontier (PPF), a graph that shows how an economy might use its resources to produce two goods. It shows all of the possible combinations of those goods that can be produced using the available resources and technology fully. Helps measure opportunity costs of production choices, economic efficiency, and show how changes in technology and human capital can influence production efficiency.
What do PPF's show?
Measure the opportunity costs of different production choices, measure economic efficiency, and show how changes in technology and human capital can influence production efficiency. Shows how scarcity affects growth, and growth pushes curve outward.
7 Characteristics of Our Version of Capitalism
Economic freedom, competition, equal opportunity, building contracts, property rights, profit motive, and limited government.
Adam Smith Invisible Hand
Moves the market to equilibrium point.
The extra satisfaction or pleasure you will get from an increase of one additional unit of a good/service.
The displeasure/dissatisfaction you get from an increase of one additional unit of good/service.
Law of Diminishing Marginal Utility
As the quantity of a good consumed increases, the marginal utility of each additional unit decreases.
The fairness with which an economy distributes its resources and wealth.
A society's way of coordinating the production and consumption of goods and services.
Income earned when an individual sells or rents a factor of production that he/she owns. Wages are factor payments made to workers in exchange for their labor.
Free Enterprise System
An economic system in which the means of production are mostly privately owned and operated for profit.
Circular Flow Model of a Mixed Economy