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Intro to Economics
| Question | Answer |
|---|---|
| Economics | 1) The study of production, distribution and consumption of goods & services 2) The study of balancing unlimited wants & needs with scarcity of resources 3) The study of decision making |
| Fundamental Economic Problem | Scarcity of Resources |
| Goods | Tangible product |
| Services | An activity Ex) teaching, police man |
| Needs | Required for survival ex) clothing, shelter |
| Wants | Things we would like to have ex) entertainment, vacations |
| Tradeoff | Exchanging one thing for the use of another |
| Opportunity Cost | The next best alternative (the value of what you gave up) |
| Production Possibilities Boundary | The max |
| Price | The amount a customer pays for that product |
| Fixed Cost | Expenses do NOT change with production (rent, equiptment, taxes, insurance) |
| Variable Cost | Expenses that DO change with production (utilities, product) |
| Marginal Cost | The additional expenses from producing ONE more item (making a 30 gallon pot of coffee & only serving 1 cup) |
| Marginal Revenue | The change in total revenue, the extra revenue, that results from selling one more unit of output |
| Marginal Benefit | the additional benefit arising from a unit increase in a particular activity |
| 4 Factors of Production | Natural Resources (raw materials needed) Labor (human resources) Capital Goods (tools, machinery, items needed to make or offer the goods or service) Entrepreneurship (innovation, improvements, risks, ideas that make a business unique) |
| Traditional Economy | People do things the way they have always been done |
| Command Economy | The government controls the factors of production |
| Pure Market Economy | Private citizens control the factors of production |
| Mixed Economy | Mixture of a a variety of economic systems |
| Capitalism | An economic system in which private citizens own and use the factors of production in order to seek a profit |
| Free Enterprise | An economic system in which private business operates in competition and largely free of state control |
| Private Property Ownership | The right to own/use or dispose of our property as we choose, as long as it doesn't interfere with others |
| Competiton | The struggle between buyers & sellers to get the best products at the lowest prices, sellers compete for customers |
| Profit Motive | People are free to risk their savings. Businesses can maximize profit. |
| Voluntary Exchange | Buyers & sellers freely & willingly engaging in market transactions, act freely & benefit |
| The Wealth of Nations | Book written by Adam Smith |
| Laissez Faire | Means "to let alone" government should not interfere in the marketplace. Governments role is confined to actions that ensure free competition |
| Invisible Hand Theory | A term used by Adam Smith to describe his belief that individuals seeking their economic self-interest actually benefit society more than they would if they tried to benefit society directly |
| Division of Labor | Breaking down a job into small tasks performed by different workers |
| Specialization | When people, businesses, regions or even countries concentrate on goods or services that they can produce better than anyone else |
| Productivity | Efficient use of resources |
| Gross Domestic Product (GDP) | The total value, in dollars, of all final goods & services produced in a country during a single year |
| Total Revenue | The number of units sold multiplied by the average price per unit |
| Cost-Benefit Analysis | Estimates the strengths & weaknesses of alternatives |
| Cost | What is being given up, an amount that must be paid to buy or obtain something |
Created by:
livilou541
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