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fundamental economic problem of meeting people's virtually unlimited wants with scarce resources
factors of production
productive resources that make up the four categories of land, capital, labor, and entrepreneurs
capital (capital goods)
manufactured (something that is man-made) aids to production; some sort of physical tool that helps you (machinery)
people coming up with ideas; the organizing and risk-taking factor that brings together the other factors
gross domestic product (GDP)
dollar value of all final goods, services, and structures produced within a country's borders during a one-year period
paradox of value
apparent contradiction between the high monetary value of a nonessential item and the low value of an essential item
division of labor
division of work into a number of separate tasks to be performed by different workers
the next best alternative forgone when an economic decision is made (never in terms of money)
production possibilities frontier
shows the maximum combinations of goods and services that an economy can produce in a given time period, if all the resources in the economy are being used fully and efficiently, and the amount of resources and the state of technology are fixed (ceteris paribus)
free enterprise economy
market economy in which privately owned businesses have the freedom to operate for a profit with limited government intervention
economic system in which private citizens own and use the factors of production in order to generate profits
economic system that has some combination of traditional, command, and market economies
economic system in which supply, demand, and the price system help people make economic decisions and allocate resources
economic system in which the allocation of scarce resources and other economic activities are based on ritual, habit, or custom
mixed or modified free entreprise economy
economy where people carry on their economic affairs freely but are subject to some government intervention and regulation
the study of the economy as a whole, or its basic subdivisions or aggregates, such as the government sector, the household sector, and the business sector
the study of the choices that individuals and businesses make, and the way these choices interact in markets, and the influence of governments
FACTS; things that can be proven true or false; refers to statements that may be proven right or wrong by looking at the facts; it describes "what is"
OPINIONS; think of norms or guidelines; refers to statements that cannot be conclusively decided and use words like "ought," "should," "too much," "too little," etc.; normative statements involve value judgments; this aspect of economics studies "what ought to be" instead of "what is"
"everything else being equal" (isolating variables, making sure all else is constant)
basic economic problem
the ____ ____ ____ (scarcity) forces producers to answer: what to produce? how to produce? and for whom to produce?
any point on the PPF (curve); the maximum amount an economy could produce if all resources are being used fully and efficiently
law of increasing opportunity costs
as the production of a good or service increases, the opportunity cost of producing it tend to rise (i.e. the more computers produced, the less corn produced because more resources are used to make corn)
the extra utility gained from consuming one more unit of a product; what happens with one more of something...does the utility decrease, increase, or stay the same? (compare ____ ____ with rising costs)
law of decreasing marginal utility
in most cases, marginal utility falls as consumption increases; it can even be negative or become negative (i.e. example with ice cream scoops)
this terms refers to economies that formerly were planned but are moving towards a free market system; they are mostly "Eastern Block" countries such as Poland, Hungary, and Russia.
same as the command system; decisions about "what, how and for whom" are made by a central body (the government), and all resources are collectively owned and managed by the government; governments arrange all production, set wages, set prices
free market economy
same as capitalism; instead of a central body, prices are used to make decisions about "what, how, and for whom;" production is left in private hands and demand and supply are left to set wages and prices in the economy
tool, equipment, or other manufactured good used to produce other goods and services; a factor of production
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