unit 1 exam

covering chapters 1,2,3

Economics

Study of how humans make decisions in scarcity.

Scarcity

Human wants for goods, services, and resources exceed availability.

Division of Labor

Production of a good or service divided among different workers.

Specialization

Allows workers to focus on parts of production where they have an advantage.

Core Competency

Business focuses on a few products to enhance efficiency.

Economies of Scale

As production increases, the average cost of producing each unit decreases.

Microeconomics

Study of individual agents within the economy (households, workers, businesses).

Macroeconomics

Study of the economy as a whole and broad issues like GDP and inflation.

Monetary Policy

Central bank's policies affecting bank lending and interest rates.

Fiscal Policy

Government spending and taxation decisions made by the legislative body.

Theory

Simplified representation of how variables interact in an economic issue.

Model

Empirical representation used to test economic theories.

Traditional Economy

Oldest economic system where production is based on family occupations.

Command Economy

Government determines production, prices, and wages.

Market Economy

Decentralized decision-making where buyers and sellers interact.

Globalization

Expansion of cultural, political, and economic connections across borders.

Exports

Goods and services produced domestically and sold abroad.

Imports

Goods and services produced abroad and sold domestically.

Gross Domestic Product (GDP)

Measure of the total production in an economy.

Comparative Advantage

Ability of a country to produce a good at a lower opportunity cost than another.

Opportunity Cost

Value of the next best alternative that is forgone when making a decision.

Marginal Utility

Satisfaction gained from consuming an additional unit of a good.

Law of Diminishing Marginal Utility

Additional satisfaction decreases as more of a good is consumed.

Sunk Costs

Costs that cannot be recovered and should not affect current decisions.

Production Possibilities Frontier (PPF)

Model showing the constraints society faces in production.

Productive Efficiency

Impossible to produce more of one good without decreasing another.

Allocative Efficiency

Production combination that society desires based on consumer demand.

Price Ceiling

Legal maximum price for a good or service to keep it affordable.

Price Floor

Legal minimum price for a good or service to ensure producers receive a fair price.

Consumer Surplus

Difference between what consumers are willing to pay and what they actually pay.

Producer Surplus

Difference between what producers receive for a good and their actual costs.

Social Surplus

Total economic surplus, the sum of consumer and producer surplus.

Deadweight Loss

Loss in social surplus that occurs when the economy produces at an inefficient quantity.