economics unit 1

study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants
deals with behavior and decision making by small units such as individuals and firms
deals with the economy as a whole and decision making by large units such as governments
people who do not and can not have enough income and time to satisfy their every want
factors of production
resources needed to produce goods and services
natural resources that exist without human intervention
work people do, also known as human resource
tangible items that people can but (medicine, clothing, computers, etc)
activities done for others for a fee
the manufactured goods used to make other goods and produce other services
greater quantities of goods and services are produced in better and faster ways
ability of individuals to start new businesses, introduce new products and processes, and improve management techniques
any use of land, labor, and capital that produces goods and services more efficiently
a need is something you require for basic survival, a want is something such as a new car or electronics
difference between wants and needs
land, labor, capital, and entrepreneurship
what are the four factors of production?
scarcity always exists because of competing alternative uses for resources, a shortage is only temporary and mainly occurs after natural disasters
what is the difference between scarcity and shortages?
what is the condition that results because wants are unlimited?
A want
Is needing new clothes classified under a want or a need?
exchanging one thing for another
opportunity cost
the value of the next best alternative that had to be given up to do the action that was chosen
production possibility curve
show the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time
When making a trade-off you lose something, which relates to opportunity cost where you give up an opportunity
How are trade-offs and opportunity costs related?
It requires you to forego one thing when you choose another
What does making a trade-off require you to do?
Opportunity cost
What do economists call the next best alternative that was given up for the one chosen?
economic cost is the sacrifice involved in performing an activity or following a decision or course of action
In economics, what is cost?
They show the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time
What does a production possibilities curve show?
all the activity in a nation that together affects the production, distribution, and use of goods and services
economic model
theories the economists use in their work
an educated guess or prediction
Economists have different perspectives and don’t necessarily agree with each other
Why are there three different schools of economic thought?
To show activity in a nation that affects the production, distribution, and use of goods and services
For what purpose do economists use real-world data in building models?
A theory is referred to as a hypothesis
What are theories in economics called?
economic system
the way a nation determines how to use its resources to satisfy its people’s needs and wants
traditional economy
answers three basic questions according to tradition
command economy
similar to traditional; individual has little, if any influence over how the basic economic questions are answered
market economy
voluntary exchange of goods and services between buyers and sellers
circular flow of economic activity
the flow of resources, goods, and services, and income in a market system
mixed economy
combines basic elements of a pure market economy and a command economy
What should be produced? How should it be produced? For whom should it be produced?
What three questions must all economic systems answer?
Individuals own factors of production in a market economy
Who owns the factors of production in a market economy?
How should it be produced? would be answered
What economic question is being answered if an industry replaces some workers with machines?
another name for the market system
pure capitalism
free-enterprise system
individuals are free to own and control the factors of production
amount left after all the costs of production have been paid (wages, rent, interest, taxes, etc)
profit incentive
desire to make profit; also known as profit motive
private property
property that is owned by individuals or groups rather than by the federal state or local governments
rivalry among producers of similar products to win more businesses by offering lower prices or better quality
The government places legal restrictions on freedom of enterprise (zoning regulations, child labor laws, hazardous waste disposal, etc)
What is the role of government in our free-enterprise society?
Buyers not sellers, make decisions about what should be produced. The success or failure of a good or service in the marketplace depends on individuals freely choosing what they want to buy
How do freedom of enterprise and freedom of choice apply to the American society?
ownership of private property, perfect competition, profit motive, consumers sovereignty, freedom of occupational choice, and least government interference
What are six characteristics of pure economic market?
They regulate the quantity of various foods and drugs, watch over the nation’s money and banking system, inspect workplaces for hazardous conditions, and guard against damage to the environment
What is the governments limited role in pure capitalism?
People having rights to risk investments, own productive assets, and learn new ways of producing creates wealth and prosperity for all
Why is private property important in the American economic system?
economic efficiency
wise use of available resources so as to obtain the greatest benefits possible
economic equity
the attempt to balance an economic policy so that everyone benefits fairly
standard of living
the material well-being of an individual, group, or nation, measured by how well their necessities and luxuries are satisfied
economic growth
expansion of the economy to produce more goods, jobs, and wealth
They must be able to support themselves and their families, and use their education to help them become a productive member of the free enterprise system
How can people balance economic rights with economic responsibilities ?
Freedom, efficiency, equity, security, stability, and growth
What are three goals of the free-enterprise system?
any person or group that buys or uses goods and services to satisfy personal needs and wants
disposable income
income remaining for a person to spend or save after all taxes have been paid
discretionary income
money income a person had left to spend on extras after necessities have been bought
rational choice
choosing the alternative that has the greatest value from among comparable-quality products
Luxury items and entertainment
What kinds of products are purchased with discretionary income?
Reason for purchase, concentrate on needs first, and consider trade-offs involved
Before buying anything, what three questions should you ask yourself?
No because each person’s value system is different
Do all rational consumers think a like?