ECON UNIT 1 VOCAB

scarcity

scarcity

we have unlimited wants but limited resources

choices

economics is the study of choices

economics

study of how individuals and societies deal with scarcity

trade-offs

alternatives that we give up whenever we choose one course of action over others

opportunity cost

the most desirable alternative given up as a result of a decision

microeconomics

study of small economic units such as individuals, firms, and industries

macroeconomics

study of the large economy as a whole or economic aggregates

theoretical economics

the use of the scientific method to make generalizations and abstractions to develop theories

policy economics

theories that are applied to fix problems or meet economic goals

positive statements

based on facts. Avoids value judgements (what is)

normative statements

includes value judgements (what ought to be)

utility

satisfaction

marginal

additional

allocate

distribute

shortages

occur when producers will not or cannot offer goods or services at current prices. Shortages are temporary

price

amount buyer (or consumer pays)

cost

amount seller pays to produce a good

investment

the money spent by BUSINESSES to improve their production

goods

physical objects that satisfy needs and wants

consumer goods

created for direct consumption (ex: pizza)

capital goods

created for indirect consumption (ex: over, blenders, knives) - Goods used to make consumer goods

services

actions or activities that one person performs for another (teaching, cleaning, cooking)

accountants

look at only explicit costs

economists

look at explicit and implicit costs

explicit costs

the traditional "out-of pocket costs" of decision making

implicit costs

the opportunity costs such as forgone time and forgone income

Three economic questions

1. What goods and services should be produced?

2. How should these goods and services by produced?

3. Who consumes these goods and services?

economic system

the method used by a society to produce and distribute goods and services

4 factors of production

1. Land

2. Labor

3. Capital

4. Entrepreneurship

Land

all natural resources that are used to produce goods and services. Anything that comes from "mother nature" (Water, sun, oil)

Labor

any effort a person devotes to a task for which that person is paid (lawyers, doctors, teachers)

Two types of capitals

1. Physical: any human-made resource that is used to create other goods and services (tools, tractors)

2. Human capital: any skills or knowledge gained by a worker through education and experience (college, degrees, vocational training

entrepreneurship

ambitious leaders that combine the other factors of production to create goods and services (bill gates, henry ford)

Entrepreneurs

1. Take the initiative

2. Innovate

3. Act as the Risk brearers So they can obtain PROFIT

profit

revenue - costs

you will continue to consume until

Marginal Benefit = Marginal Cost

Utility maximizing rule

the consumer's money should be spent so that the marginal utility per dollar of each good equals each other. it always assumes that you always consume where MU/ for each product is equal

the product market

the "place" where goods and services produced by businesses are sold to households

the resource (factor) markey

the "place" where resources (land, labor, capital, and ent.) are sold to businesses

circular flow model

see image

scarcity means there is not enough for everyone

government must step in to help allocate resources

economic systems

1. Centrally-Planned (Command) Economy

2. Free Market Economy

3. Mixed Economy

Centrally-Planned of Command Economies (aka communism)

1. owns all the resources

2. answers the three economic questions NO PROFIT MEANS NO INCENTIVE TO WORK HARDER

Free Market System (aka Capitalism)

1. Little government involvement in the economy

2. Individuals OWN resources and answer the three economic questions

3. The opportunity to make PROFIT gives people INCENTIVE to produce quality items efficiently

4. Wide variety of goods available to consumers

5. Competition and Self-Interest work together to regulate the economy (keep prices down and quality up)

The invisible hand (adam smith)

the concept that society's goals will be met as individuals seek their own self-interest. competition and self-interest act as an INVISIBLE HAND that regulars the free market

ROLL

READ the entire question first ORGANIZE your answer LIST your answers like the question LABEL everything

the production possibilities curve (PPC)

a model that shows alternative ways that an economy can use its scarce resources. it graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency

4 key assumptions

Only two goods can be produced Full employment of resources Fixed Resources Fixed Technology

constant opportunity cost

resources are easily adaptable for producing either good. result is a straight line PPC (not common)

law of increasing opportunity cost

as you produce more of any good, the opportunity cost (forgone production of another good) will increase. Why? resources are NOT easily adaptable to producing both goods

how much each marginal unit costs

opportunity cost/units gained

productive efficiency

• Products are being produced in the least costly way

• There is any point ON the PPC

allocative efficiency

• The products being produced are the ones most desired by society

• This optimal point on the PPC depends on the desires of society

3 shifters of the PPC

1. Change in resource quantity or quality

2. Change in Technology

3. Change in Trade

capital goods and future growth

Countries that produce more capital goods will have more growth in the future.

per unit opportunity cost review

opportunity cost / units gained

absolute advantage

the producer that can produce the most output OR requires the least amount of inputs (resources)

comparative advantage

the producer with the lowest opportunity cost

output questions

other goes over

input questions

other goes under