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Intro to Economics

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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