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Economics Unit 1

Terms in this set (23)

Economics
the study of making choices
Scarcity
something desirable but limited, or something with more than one valuable use
Opportunity Cost
your second best choice
Trade-off
similar to opportunity cost - the thing you must give up in choosing
Utility
satisfaction
Marginal
additional
Law of Diminishing Marginal Utility
after the first unit of something is consumed, each additional unit is less satisfying ("ick" factor)
Incentive
reward
Command Economy
Socialism/communism - the government controls and may own many resources. Central planners make decisions to answer the three economic questions.
Market Economy
characterized by private property, self-interest, the profit motive, competition, a limited role for government, free enterprise, a system of markets and prices
Traditional Economy
economic system based on customs, skills and cultural beliefs; sons follow the trade of fathers
Circular Flow
The exchange of money payments and productive resources between households and business. Both households and businesses benefit from these transactions.
Public good
One person's consumption of the good does not take away from another person's consumption of the good.
Private good
One person's consumption of the good prevents others from consuming the same good; the first person owns the good exclusively.
Free Rider
a person who receives the benefits of a good without paying for it.
Negative Externality
Other people suffer from another person's action.
Positive Externality
Other people benefit from another person's action
3 questions a society must ask
What to produce? How to produce it? For whom to produce it?
4 types of productive resources
Land: natural resources
Labor: human physical and mental labor
Capital: Tools, machinery, buildings
Entrepreneurship: special talents directed toward searching out and taking advantage of new business opportunities, products and methods
What does a production possibilities frontier show?
all the possible combinations of two goods a society can make
If a point is inside the PPF curve, what does it mean?
It is achievable but inefficient as they do not use all the available resources.
If a point is outside the PPF curve, what does it mean?
It is not possible to achieve without increasing the resources by growing the economy.
What is the relationship between property rights and efficient use of scarce resources?
With property rights it is in the self-interest of the owner to use scarce resources wisely.
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