econ test 1

Microeconomics example

Individual business pricing (e.g., a coffee shop setting prices).

Macroeconomics example

Inflation or unemployment in the whole country.

Trade-offs

Giving up one thing to get another.

Opportunity Cost

The next best thing you give up.

Negatives of opportunity cost

You lose other options / missed opportunities.

Factors of Production

• Capital: tools, machines
• Entrepreneurs: people who start businesses
• Land: natural resources
• Labor: workers

What leads to scarcity?

Limited resources + unlimited wants.

3 basic economic questions

1. What to produce?
2. How to produce?
3. For whom to produce?

Why people make choices

Because resources are limited.

Why efficiency matters

Saves time and money, increases profit.

Barter problems → money

Barter is hard (need exact match), money is easier.

Credit

Benefits: buy now, build credit; Liabilities: debt, interest.

Command vs Market economy

• Command: government controls
• Market: people/businesses decide.

Adam Smith

Government shouldn’t interfere much (free market works best).

Self-interest & incentives

People act to benefit themselves → drives economy.

Economic Systems

Capitalism: advantages include freedom and innovation; disadvantages include inequality and instability.
Socialism: advantages include more equality and basic needs met; disadvantages include less motivation and less efficiency.

5 Characteristics of Free Market

1. Private property
2. Freedom of choice
3. Profit motive
4. Competition
5. Limited government

Goals of Free Market Economy

1. Economic freedom
2. Efficiency
3. Equity
4. Growth
5. Security

Businesses

Produce goods/services, create jobs.

Consumers

Buy goods, drive demand.

Government

Makes laws, protects economy.

Circular Flow Diagram (what to draw)

• Households ↔ Businesses
• Households give labor, get wages
• Businesses give goods/services, get money.