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Eco-Unit 1

QuestionAnswer
What is economics? the study of how people choose from limited resources to meet their needs and wants..it's all about making good choices.
microeconomics the study of how individuals & firms deal with scarcity.
macroeconomics the study of how society as a whole deals with scarcity
good physical objects that can be purchased
services actions or activities performed for a fee
consumers people who purchase goods & services
producers people who supply goods & services
resources/factors of production land, labor, capital, entrepreneurship
land natural resources that are used to make goods/services. this includes land as well as ores, minerals, plants, animals, & water..the payment=rent
labor includes all human resources, both physical/mental. payment=wages
capital a human-made resource used to produce other goods & services. includes tools, machines, factories, buildings, equipment..payment=interest
entrepreneurship the special ability of risk-takers to combine land, labor, & capital in new ways to make new goods & services in order to make a profit..payment=profit
the fundamental problem of economics.. scarcity. we face trade-offs when it comes to using available resources.
opportunity cost the value of a product forgone to produce or obtain another product. Nothing is free..everything has a cost.
why do we have economic systems? survival for any society depends on its ability to provide food, clothing, & shelter for its people. the economic system is the organized way a society provides for the wants/needs of its people
what 3 questions will an economic system answer? what goods & services to produce? How to produce? & for whom to produce?
four economic systems.. traditional economy, command economy, market economy, mixed economy
traditional economy economic activity is based on ritual, habit & custom
strengths/weaknesses of traditional economies.. everyone knows their role..little uncertainty over what to produce or how to produce..life is generally stable, predictable, & continuous. weaknesses: tends to discourage new ideas; lace of progress leads to lower standard of living
command economy central authority makes most economic decisions..economic decisions are made at the top & the people are expected to go along with choices their leaders make
strenghths/weaknesses of command economy.. change direction drastically in a relatively short time..weaknesses=not designed to meet wants/needs of individuals, lack of incentives to work hard; large bureaucracy; not flexible
command economy central authority makes most economic decisions..economic decisions are made at the top & the people are expected to go along with choices their leaders make
command economy central authority makes most economic decisions..economic decisions are made at the top & the people are expected to go along with choices their leaders make
strenghths/weaknesses of command economy.. change direction drastically in a relatively short time..weaknesses=not designed to meet wants/needs of individuals, lack of incentives to work hard; large bureaucracy; not flexible
Market economy People in films act in their own best interest into economic questions. Markets allow buyers and sellers to come together in order to exchange goods and services. In a market economy, economic decisions are made by individuals and are based on exchange or
strengths/weaknesses of market economies Strengths -- markets can adjust over time, freedom exists for everyone involved, decision-making is decentralized, variety of goods and services are produced, high degree of consumer satisfaction. WEAKNESSES: the primary weakness is deciding for whom to p
property rights refer to the legal ownership of resources, which include the right to own, use, & sell them. a market system cannot function well w/o clearly defined property rights
efficiency requires full employment. full employments means.. all available resources should be employed.
full production implies two kinds of efficiency: productive & allocative
Production possibilities frontier the boundary between the combinations of goods & services that can be produced & those that cannot be produced, given the available factors of production & technology
in a growing economy the PPF shifts.. outward
why do nations trade? b/c economic resources are distributed unevenly throughout the world, nations specialize in producing certain goods & services, then trade to acquire the goods & services that they cannot produce
specialization in production & trade between countries generates.. higher standards of living for the countries involved. it increases productivity & allows for greater total output than would otherwise be possible
absolute advantage a person/nation has an absolute advantage when it can produce more of a given product using a given amount of resources
should a country still trade even if it has an absolute advantage in all ecomonic activities? Yes! Nations should specialize in producing goods & services for which they have the lowest opportunity cost. this is called the law of comparative advantage.
comparative advantage the principle which holds that every country should produce & trade the good. occurs when it focuses on producing the good in which the opportunity cost of production is lowest
trade barriers a means of preventing a foreign product or service from freely entering a nation's territory. trade barriers take 3 common forms: import quotas, voluntary export restraints, & tariffs
import quota a limit on the amount of a good that can be imported. a law
voluntary export restraint a self-imposed limitation on the number of products that are shipped to a particular country
tariff a tax on imported goods. individuals & businesses have to pay tariffs.
effects of trade barriers: increased prices for foreign goods & trade wars
why does a country impose trade barriers? protects jobs, protects infant industries, safeguard national security
GATT general agreement on tariffs & trade: established to reduce tariffs & expand world trade
WTO world trade organization: founded to ensure compliance w/ GATT, to negotiate new trade agreements, and to resolve trade disputes
european union established to abolish tariffs & trade restrictions among western european nations.
NAFTA north american free trade agreement. eliminates all tariffs & other trade barriers between canada, mexico, & the US by 2009
Created by: stephparnell