Econ - Unit 1 Test

Economics

Efficiently uses scarce resources with alternative uses to achieve satisfaction

Scarcity

Limited resources with unlimited wants

Utility

A good or service's capacity to satisfy (Usefulness)

Value

A good or service's monetary value (SUV)

Wealth

Sum of tangible economic goods that are scarce, useful, transferable; production, not money

Labor

Person's effort for which he/she is paid

Capital

Tools, equipment used to produce other goods/services

Paradox of value (S + U = V)

Apparent contradiction of nonessential items having high value and more essential items have lower value (EX: Dr. vs teacher)

4 factors of production

Land, labor, capital, entrepreneurs

Capital vs Consumer goods

Tools to make goods vs the physical goods you buy

Physical vs Human Capital

Tools vs people's experience using them in production

Purpose of a Circular Flow Model

Consumers and producers both supply and demand

Opportunity Cost

The cost of the next best alternative use of resources

(Ex: Instead of going to a concert, you spend your evening studying for an exam you have the next day)

Trade-offs vs opportunity cost

Act of giving up one thing to get something else vs the value of the best alternative that you gave up

Production Possibility Curve (PPC)

Graph that shows scarcity, trade-offs, opportunity cost, and efficiency. Looks at 2 products at a time, only hypothetical

Absolute vs comparative advantage

Who makes more vs can produce at a lower opportunity cost

Imports

My money goes out vs products come in

Exports

My products go out, money comes in

Exchange rates

The price of a currency relative to another (2)

Protectionism vs free trade arguments

Protect American jobs, buy America products vs benefits everybody, lowers prices, higher quality

Consumer vs capital

A good that's intended for final use by consumer vs tools used to produce goods

Durable vs nondurable

Lasts 3+ years if used regularly vs wears out within 3 years of use

Who what who what who how how how

Questions every economic system should be able to answer

Traditional economies

Answered by tradition; Benefits: Consistency, everybody knows their role; Costs: No change or innovation, no individual choice, low standard of living

Command economies

Answered by the government; Benefits: changes quickly, relative equality, free public goods and services; Costs: Little individual freedom, inefficient, consumer needs and wants not met, no incentive to work, no competition (corruption)

Market economies

Answered by the consumer, no country is this fully; Benefits: economic freedom (choice), private property, competition, profit, voluntary exchange; Costs: Non-profitable goods/services aren’t provided, employment/business success is not guaranteed, lacks equality

Mixed economies

Answered by people and government; Benefits: Individuals own most resources, government regulates some goods/service, innovation and efficiency in market, government provides public goods/services, stability, most of the world has this; Costs: Inflation, high taxes,

Tariff

A tax on an import

Quota

A limit on an import