62 terms

Fundamentals of Economics

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Scarcity
Limited resources and unlimited wants; is constant
Impossible
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Inefficient use of resources
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Frontier/Curve
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More boats produced, fewer trucks produced
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Factors of Production
Things needed to produce goods and services
ex. land, labor, capital, entrepreneurship
Land
Natural resources
Labor
People needed to do work
Capital
Man-made tools/ items used to make goods or services
Human Capital
Human knowledge and skills
Externalities
Unintended consequences of doing something; can be positive or negative
Marginal Analysis
Making a decision by comparing the cost and benefits
Economics
The study of making choices and dealing with scarcity
Opportunity Cost
The next best alternative given up when making a decision
ex. Money you could have made in the four years you choose to go to college
Trade-Offs
What you could have done
Production Possibilities Curve/Frontier
A graphical representation that shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed
Consumer Goods
Things consumers buy
Marginal Cost
The extra cost needed in producing an additional unit of a product or service
Marginal Benefit
The value of consuming an additional unit of a good or service
Economic Questions
What to produce? How to produce? For whom to produce?
Market Economy
Production and distribution of goods and services takes place through free markets and is guided by a free price system
Invisible Hand
Describes how individuals benefit society as a whole by pursuing only their interests
Command Economy
The government controls all major areas of the economy
Mixed Economy
There is a degree of private economic freedom along with centralized economic planning and the government is involved in some aspects of the economy; most common type of economic system
Traditional Economy
Production is driven by customs and tradition and the whole community works for the common good
Consumer Sovereignty
The way consumers decide what producers will sell by buying things they like
Profit Motive
People and businesses make decisions based on their ability to earn a profit
Human Resources
Represents the quantity and quality of human effort towards producing goods or services; improving education and health of workers is considered an investment in this
Specialization
When a particular place uses the available resources and learns to provide specific products well
Interdependence
Relationships between places to get the goods and services they need
Natural Resources
Things found in nature that are used to provide goods and services; can be renewable or nonrenewable
Functions of Money
Medium of exchange (accepted as payment to purchase goods and services), unit of account (compare the value of goods and services), store of value (held to buy something in the future)
Fiat Money
Money that has no real value
Fewer boats produced, more trucks produced
...
Efficient use of resources
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Division of Labor
The assignment of different parts of a manufacturing process or task to different people in order to improve efficiency
Voluntary Exchange
When two or more parties exchange goods or services of value to them and benefit from a non-fraudulent transaction; why a market economy works
Competition
The rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying the elements of the marketing mix: price, product, distribution, and promotion
Regulations
Laws that control the way that a business can operate; are in place to protect consumers, competition, the environment, etc.
Deregulation
The government handing over control of the production of goods and services it feels can be better handled by private companies
Public Goods
goods and services that exert positive externalities with two key characteristics: non-rivalrous and non-excludable.
Market Failure
A situation where free markets fail to allocate resources efficiently
Productivity
A measure of output per unit of input
Comparative Advantage
The advantage one group has over others in producing a particular good if they can produce that good at a lower relative opportunity cost
Absolute Advantage
The ability of a party to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources
Allocate
To distribute
ex. first come, first serve; lottery; characteristics; competition; trade; purchase
Anti-Trust Laws
Laws to block monopolies
Redistribute Income
Taxing those with larger incomes and redistributing to those with lower incomes
Economic Efficiency
Wise use of available resources so as to obtain the greatest benefits possible
Economic Freedom
The freedom to own property, to make a profit, and to make choices about what to produce, buy, and sell
Free Riders
People who take advantage of the system being able to use a common resource without paying for it
Subsidies
Money from the government given to industries that are in need of support and stabilization; their purpose is to increase production in order to ensure competition in the industry
Progressive Tax
A tax whose rate increases as the payer's income increases; takes a larger percentage of income from high-income groups than from low-income groups; justification is that the rich can afford to pay a higher percentage because they have more disposable income than the low-income groups
Regressive Tax
A tax whose rate increases as the payer's income decreases
Economic Equity
The attempt to balance an economic policy so that everyone benefits fairly
Private Property Rights
Protects producers and consumers; ensures market transactions
Federal Agency
An administrative unit of government that provides a public service
Public Policy
A course of action chosen by public authorities to address a problem; can be expressed in the body of laws, regulations, decisions, and/or actions of the government
Transfer Payments
One of the main ways the federal government redistributes wealth; when the government disrupts competitive forces in the market in order to provide for certain social needs
ex. welfare and unemployment benefits
Non-Rivalrous good
a person's consumption of a public good does not limit the benefits available to other people.
Non-excludable good
firms cannot exclude people from the benefits of consumption, even if they do not pay. Hence, private-sector firms are unlikely to supply this.
rival good
the property of a good whereby one person's use diminishes other people's use
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