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economics a study of decision making in a world of scarcity.
economics studies how people allocate scarce resources in an attempt to satisfy unlimited wants/needs
scarcity limited resouces in relation to unlimited wants
tradeoff giving up one thing for something else
value judgment the relative importance one assigns to an action or alternative
opportunity cost the cost of a purchase or decision measured in terms of a forgone alternative; what was given up to make a purchase or carry out a decision
efficiency producing the largest attainable output of a desired quality with a given set of resources; producing at the lowest possible cost
equity justice or fairness in the distribution of goods and services
resources (factors of production) persons and things used to produce goods and services; limited in amount; categorized as labor, capital, land, and entrepreneurship
labor physical and mental human effort used to produce goods and services
capital items, such as machinery and equipment, used in the production of goods and services
land productive inputs that originate in nature, such as coal and fertile soil
entrepreneurship the function of organizing resources for production and taking the risk of success or failure in a productive enterprise
wages income for labor
interest income for capital
rent income for land resources
profit income for carrying out the entrepreneurial function.
theory tells us about relationships
policy deals with guidelines and actions
economic theory a formal explanation of why an event occurs, or gives a generalized interpretation of the relationship between economic variables
model the setting within which an economic theory is presented
assumptions conditions held to be true within a model
econometrics the use of statistical techniques to describe the relationships between economic variables
economic policy a guide for a course of action
graph an illustration showing the relationship between two variables that are measured on the vertical and horizontal axes
direct relationship two variables move in the same direction: when one increases, so does the other; graphs as an upward sloping line
inverse relationship two variables move in opposite directions: when one increases, the other decreases; graphs as a downward-sloping line
production possibilities table gives the various amounts of two goods that an economy can produce with full employment and fixed resources and technology
unemployment resources available for production are not being used
economic growth an increase in an economy's full employment level of output over time
capital goods goods, such as machinery and equipment, that are used to produce other goods and services
consumer goods goods, such as food and household furniture, that are produced for final buyers
macroeconomics the study of individual decision making units and markets within the economy
efficiency results when a good or service of a desired quality is produced at the lowest resource cost
efficiency allows the greatest attainable lessening of scarcity because resources are used to their fullest
economic theory explored within the framework of a model that includes variables, assumptions or conditions held to be true, data, and conclusions
economic policies value judgments are important in the selection of these
basic economic decisions the choices that must be made in any society regarding what to produce, how to produce, and to whom production is distributed
economic system the way in which an economy is organized to make the basic economic decisions
traditional (agrarian) economy an economy that relies largely on tradition, custom, or ritual when making the basic economic decisions
traditional economy strengths I economic security/stability
traditional economy strengths II strong family/community ties
traditional economy strengths III economic safety net for most members
traditional economy weaknesses I lack of innovation or change
traditional economy weaknesses II few economic opportunities for individuals
traditional economy weaknesses III reinforcement of social hierarchies and low levels of production
Market economy I rooted in the belief that decisions are made by individuals, or in a philosophy of individualism
Market economy II intentions
price system a market system; one in which buyers and sellers communicate through prices in markets
private property rights essential to a market economy. gives individuals and businesses the right to own resources, goods, and services, and to use them as they choose
free enterprise the right of a business to make its own decisions and to operate with a profit motive
capitalism an economic system with free enterprise and private property rights; economic decision making occurs in a market environment
circular flow model a diagram showing the real and money flows between households and businesses in output, or product, maekets and input, or resource markets
output markets (Product Markets) markets in which businesses are sellers and households are buyers; consumer goods and services are exchanged
Created by: hkkfahy