Economics Ch. 1-3
Terms in this set (40)
Where does TINSTAAFL stand for?
There Is No Such Thing As A Free Lunch
What is the fundamental economic problem?
The fundamental economic problem is scarcity
What are the four factors of production?
What are the three basic questions of economics?
-What will we produce?
-How will we produce?
-For whom will we produce?
What are the four key elements that are define the scope of economics?
What are trade-offs?
Alternatives that must be given up when one is chosen rather than another
What are three advantages of a decision-making grid?
-Forces you to consider a number relevant alternatives
-Requires you to identify the criteria used to evaluate the alternatives
-Forces you to evaluate each alternative based on the criteria you selected
What are opportunity costs?
The cost of the next best alternative use of money, time, resources when one choices is made rather than another
What does a production possibilities frontier show?
A diagram representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed
How is the production possibilities frontier used by economists?
Economists use models to better understand the past or present and to predict the future
What is the difference between a need and want?
A NEED is a basic requirement for survival and includes food, clothing, and shelter while a WANT is a way of expressing a need
What is the difference between a good and a service?
A good is a tangible item of wealth meaning they can see it, touch it, feel it while service is an intangible item of wealth
What are economic products?
Goods and services that are useful, relatively scarce, and transferable to others
To what does the phrase paradox of value refer?
Early economists; the situation where some necessities, such as water, have little more value, whereas some non-necessities, such as diamonds, have a higher value
What gives something utility?
Utility is not something that is fixed or measurable like weight or height
What gives something value?
For something to have value, economists decided, it must be scarce and have utility
What term refers to the efficient use of productive resources?
Productivity: which productive resources are used efficiently; normally refers to labor, but can apply to all factors of production
From what does economic activity stem in a traditional economy?
Ritual, habit, or custom
What is the main strength of a traditional economy?
Is that everyone knows which rule to play
What is the main weakness of a traditional economy?
It tends to discourage new ideas and new ways of doing things
Who makes most of the economic decisions in a commands economy?
They are made by government; the people have little, if any, influence over how the basic economic questions are answered
What is the main strength of a command economy?
It can change direction drastically in a relatively short time
What are five weaknesses of a command economy?
-It is not designed to meet the wants of consumers
-The system does not give people the incentive to work hard
-Requires a large decision-making bureaucracy
-It does not have the flexibility to deal with minor, day-to-day problem
-People with new or unique ideas find it difficult to get ahead in a command economy
How are economic decisions made in a market economy?
In a market economy, people's decisions act as votes. When consumers buy a particular product, they are casting their dollar "votes" for that product
What are six strengths of a market economy?
-Overtime it can adjust to change
-It's high degree of individual freedom
-Relatively small degree of government interference
-Decision making is decentralized, or not concentrated in the hands of a few
-Incredible variety of goods & services available to consumers
-The high degree of consumer satisfaction
What are the two main weaknesses of a market economy?
It does not provide for the basic needs of everyone in the society and it does not provide enough enough of the services that people value highly
What are seven broad social and economic goals of the United States?
What is Social Security?
A federal program of disability and retirement benefits that covers most working people
What goal does Social Security support?
Retires, survivors, disabled persons, and Medicare recipients are eligible for benefits
What is inflation?
A rise in the general level of prices
What economic inflation does it run counter to?
People who live on a fixed income, find that bills are harder to pay and that planning for the future is more difficult
Why is economic growth a goal of most Americans?
Most people hope to have a better job, a newer car, better clothes, their own home, and a number of other things in the future
Give an example of how economists goals can conflict with each other,.
A policy that keeps foreign made shoes out of the U.S. could help the goal of full employment in the local shoe industry
What are four important characteristics of a market economy?
-Where private citizens -Entrepreneurs
-Own the factors of production
What is meant by the term voluntary exchange?
The act of buyers and sellers freely and willingly engaging in market transactions
What motivates people to improve their material well-being and by doing so drives a free enterprise economy?
The profit motive the driving force that encourages people and organizations to improve their material well-being- based on capitalism
Why is the entrepreneur one of the most important people in a market economy?
Because they organize and manages land, capital, and land in order to seek the reward called profit
Why is the consumer considered sovereign in a market economy?
Because they are a rule of the consumer as a sovereign, or ruler, of the market
What four does government play in the American society?
-Provider and Consumer
-Promoter of National Goals
Why is the American Economy referred to as a mixed economy or a modified private enterprise economy?
Because there are some elements of tradition in our economy