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Chapter 4 and 6

Vocabulary, key concepts, quizes
Private Property
the right of private persons and firms to obtain, own, and control, employ, despose of, and bequeath land, capital, and other property
Property Rights
encourages investment, innovation, exchange, maintenance of property, economic growth
Freedom of Enterprise
entrepreneurs and private businesses can obtain and use resources to produce their goods and sell them where they choose
Freedom of Choice
owner can employ or dispose of perty and money as they choose. Workers can enter wehre they think they are qualified, consumers can buy and choose goods and services
Self Interest
motivating force of all various economic units as they express their free choices
freedom of choice exercised in pursuit of a monetary return
Round About Production
the construction adn sue of capital to aid in production of consuemr goods
use of resources of an individual to concentrate on one or a small number of goods and services
Division of Labor
human specialization
-specialization makes use of differences in ability (do
what best at)
-specialization fosters learning by doing (get better by
doing same thing)
-specialization saves time
Medium of Exchange
sellers except, buyers pay

ex) money
swapping, trade
convenient socail invention to exchange goods and services
Four Fundamental Questions
What goods and services will be produced?
How will goods and services be produced?
Who will get the goods and services?
How will the system accomodate change?
Economic Costs
payments that must be made to secure and retain the needed amounts of those resources
Normal Profit
payment (cost of ) entrepreneur's contribution

(what you want/desire to make)
Economic Profit =
total revenue (product price x quantity) - total cost (price of each resource x amount employed)
Economic Profit (pure profit)
total revenue of a firm less its economic costs (explicit and implicit)

more than normal (more than what you desire to make)
Expanding Industry
firms earn economic profits and for which an increase in outputs occurs as new firms enter industry
Declining Industry
economic profits are negative, decrease outputs as firms elave it
Consumer Sovereignty
consumers direction of production through dollar votes
Dollar Votes
what is purchased
Derived Demand
demand for resource depends on demand for products it helps provide
Guiding Function of Prices (directing)
ability of price changes to bring about changes in quantities of products and resources demanded and supplied
Invisible Hand
tendency of firms and resource suppliers that seek to further self-interest in competitive markets to competitive interests of society
Creative Destruction
new products destroy old

ex) pc's destroyed typewriters
Virtues of a Market System
Comparative Advantage
lower domestic oportunity cost than potential trading partner
Terms of Trade
beneficial to both
Foregin Exchange Market
a market in which various national currencies are exchanged for one another

-competitive market
-linkages to all domestic and foreign prices
Exchange rates
equilibrium prices
decrease in dollar compared to other currency
value of dollar increases
Protective Tarriffs
excise taxes or duties on imported goods
-shield domestic prodcers from foregin competition
Import Quotas
limits on quantities or total value of specific item
Non Tarrif Barriers (nonquota barriers)
unreasonable standards

ex) inspection of agriculture
Export Subsides
government payments to domestic producers of exported goods
World Trade Organization
oversees trade agreements by member nations and rules on trade disputes
North American Free Trade Agreement
free trade zone
reduced internal trade barriers
Best definies economic costs
total payments made to secure and retain needed resources
A change in the dollar price of yen from $1 = 100 yen to $1 = 50 yen will
increase U.S. exports and depress Japanese exports
Nontariff barriers are
licensing requirements, unreasonable quality standards, and the like designed to impede imports
The World Trade Organization (WTO)
hears and rules on trade disputes between nations
The Norht AMerican Free Trade Agreement (NAFTA)
established a free trade zone encompassing Canada, MExico, and the US
The market system's answer to the fundamental question "Who will ge the goods and services?" is essentially
Those willing and able to pay for them
The advent of DVDs essentially demolished the market for videocassettes. This was an aexample of
creative destruction
When economists say that the demand for a resource is a derived demand, they meant that
the demand for resources depends on the demand for the product taht those resources produce.
The invisible hand refers to the
notion that, under competition, decisions motivated by self-interest promote the social interest
Export subsides are
government payments to domestic producers to reduce the world prices of exported goods
Import quotas are
maximum limits on the quantity or total value of specific products imported to a nation
Specialization---the division of labor--enhances productivity and efficiency by
-avoiding the time loss involved in shifting from one production task to another
-allowing workers to develop skills by working on one, or a limited number, of tasks
0-allowing workers to take advantage of existing differences in their abilities and skills
According to teh concept of comparative advantage, agood should be produced in that nation where
its domestic opportunit cost is least
The market where currencies are traded
is called the foreign exchange marekt
Broadly defined, competition involves
independently acting buyers and sellers and freedom to enter or leave markets
Protective tariffs are
excise taxes or duties placed on imported products
Examples of economic cost
-normal profits
The payment made by a firm to obtain and retain entrepreneurial ability is known as
normal profit