Economics Chapter 1,2,3,4 Quiz Review

Economics

Economics

the study of how people satisfy their unlimited needs and wants with limited resources 

Need

a need that people need to have to survive (food, water, etc)

Resource

can be a human resource or it can be a physical resource (oil, wood)

Scarcity

There's a limited amount of something so you have to make trade-offs

Adam Smith

Came up with the invisible hand (the idea of self-interest and how it promotes the free market economy)

Economic enigmas

Something in economics that is hard to explain and then use the seven principles to further elaborate

Unintended consequences

These are things as a result of economic decisions that things that other people have to deal with. (POSITIVE OR NEGATIVE) . Examples: Airport, planes flying over cities

Microeconomics

study of typically your own economy on a small level (how a person or family deals with stuff)

Macroeconomics

Looks at the economy as a whole

Positive economics

The study of economic phenomena is based on facts, data, and objective analysis rather than personal opinions or value judgments. (describes how things are, what actually happens)

Normative Economics

The branch of economics that focuses on what ought to be, rather than what is. (if a recession is coming)

Limits of Graph Representations

Can only represent one or two factors and can't give you the whole picture

(1) Scarcity Forces Tradeoffs

Because there's a limited amount of things there's going to be trade-offs 

(2) Cost Benefit Analysis

Evaluates the costs and benefits of a decision or project to determine its overall value. It helps assess whether the benefits outweigh the costs or vice versa.

(3) Thinking on Margin

This principle suggests that rational people take their decisions by thinking at the margins i.e. by comparing the marginal benefit with the marginal cost and if the marginal benefit is more than the marginal cost

(4) Incentives Matter

Incentives, can be both positive and negative, and serve as powerful motivators that influence decision-making processes and ultimately drive economic outcomes.

(5) Trade Makes People Better Off

Through the exchange of goods and services It allows people to access a wider variety of products at lower prices, increasing their standard of living.

(6) Markets Coordinate Trade

Markets do a better job coordinating exchanges than we do as people (Amazon vs Malls)

(7) Future Consequences Count

Decisions are made today because in the future there are unintended consequences (solar/electric cars)

Goods

Tangible products that are manufactured/produced for sale or consumption. Goods are typically bought and used by individuals or businesses to satisfy their needs or wants.

Services

Activities/Actions provided by one party to another resulting in a desired outcome or benefit. (psychologists, lawyers, therapists)

Shortage

Occurs when the demand for a product or service exceeds its supply, leading to a lack of availability. (oil)

Land

Materials used to make a product (timber, metal, steel)

Labor

the people who make it

Capital

the TOOLS used to make the product

Human Capital

Someone who knows a certain skill and how to fix it ( an IT guy)

Financial Capital

Actual money that can be invested in other things

Entrepreneur

Innovator, strategist, risk taker! The person who created a product and took a risk and could have lost money.

Opportunity Cost

The cost of the next best alternative foregone when making a decision.

Diminishing marginal utility

As a person consumes more of a good or service, the additional satisfaction or benefit they receive from each additional unit decreases.

Guns and Butter Example

It depends on more developed nations to build guns, and less developed countries to develop butter because of farming.

Three Fundamental Economic Questions

WHAT to produce, HOW are goods/services produced, and for WHOM are goods and services to be produced?

Economic Freedom

 How much the government stays out of business

Economic Equity

Fair distribution of society’s wealth. Everyone gets a fair share of the economic pie. 

Economic Growth

striving to produce more goods and better quality goods

Economic Security

Providing to support those who cannot support themselves

Traditional economy(Subsistence)

Customs and traditions dedicated to this economy. The goal of a traditional economy= stability

Command economy(Socialism/Communism)

The government makes all the decisions and answers the fundamental questions. Favor equity and security. The economy is centralized (USSR) Failures: coordination of the economy, no incentives, no measurement of success) An economy where the government planners make all the economic decisions(communism) 

Market Economy

The economy depends on decisions made by individuals (producers and consumers) Favors economic freedom and efficiency. Individuals and businesses are free to make their own economic decisions---competition.   (buyers and sellers dictate how the economy goes)

Free Market Economy

A market economy that has has no regulations( does not exist)

Laissez-faire

Hands off approach of the economy

Circular flow model

How you show how goods and services go through an economy so remember it's households and firms and in the middle is government 

Transfer Payment

Is where the government transfers money back to you in the form of it could be welfare could be a tax break a rebate so it's the government giving back something. 

Socialism

Another word for socialism would be a mixed economy

Public Works

Taxes paid used for public need (bridges, schools, roads)

The flow of goods in a market economy

the government's not involved so when I showed you that circular flow model

The flow of goods in a mixed economy

households, firms with the government in the middle 

Characteristics of the United States Economic System: this is what allows us to be the most powerful nation in the world

• Economic freedom

• Competition

• Equal opportunity

• Binding contracts

• Property rights

Intellectual Property

when someone has an idea and they patent it (book, concept, movie)

Patent

how you protect, to prevent someone from making the same. If they take ur idea get $$

Copyright

Nobody can use it, or make it

Profit Motive

The motive to either get a raise or get a promotion ( does not exist in a command economy

Limited Government

Less intervention in business

Adam Smithh (invisible hand)

A way that markets coordinate trade

Specialization

Highly skilled at a specific task/process to make something within the division of labor. Why is specialization good? faster/more efficient=cheaper

Division of Labor

Jobs given based on specialization. Each group or person does a specific task in in the building of something and it makes it more efficient so think of Ford creating the you know Factory and the assembly line

voluntary exchange

both parties give up something to gain what they want=trading essentially of GOODS

Barter

direct exchange of services for another

Money

medium of exchange that can be traded for goods and services, makes trade easier

Economic interdependence

Trade makes us interdependent with the countries we trade with( oil) 

Absolute advantage

The person/country that can produce more. You are better at equipped to make something than other countries 

Comparative advantage (compare…)

who does it better, measured by opportunity cost (weather). How does trade increase the value of an item? Lowers the cost of goods, raises the standard of living, moving goods to those who value them, more choice. It brings competition