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How do scarcity and poverty differ?
Scarcity is limited resources, Poverty is limited income
Why can't opportunity cost exist without scarcity?
If some things aren't limited (scarce), then you wouldn't need an alternative (trade-off method)
Does an economy that is inside its production possibilities curve face any trade-offs?
Yes, if there are opportunity costs
How can a good be costly yet not scarce?
If it is high in demand, yet abundant
Scarcity
When a society does not have enough resources to produce all the things people would like to have
Factors of Production
Resources that help a society produce and distribute its goods and services
FoP: Land
Natural resources
FoP: Capital
Tools, equipment, factories used in the production of goods and services
FoP: Financial capital
Money used to buy the tools and equipment used in production
FoP: Labor
People with their skills
FoP: Entrepreneurs
People who start new businesses or bring new products to market
Economics
Study of human efforts to satisfy wants through use of scarce resources
Opportunity Cost
The cost of the next best alternative use of money, time, or resources when one choice is made rather than another
Production Possibilities Curve/Frontier
A diagram representing combinations of goods or services an economy can produce when all productive resources are employed
Need
Basic requirement for survival
Want
Means of expressing a need
Free Products
Sunshine, Air, etc. (v plentiful that no one can own)
Good
A tangible commodity (car, book, etc.)
Consumer Good
Intended for final use by individuals
Capital Good
A good used to produce other goods
Durable Good
An item that lasts more than 3 years when used on a regular basis (oven, stove, etc.)
Nondurable Good
An item that lasts for less than 3 years when used on a regular basis (food, clothing, etc.)
Service
Work that is performed for someone
Consumers
People who use goods and services to satisfy wants and needs
Consumption
The process of using up goods and services to satisfy wants and needs
Value
Something that has a worth that can be expressed in dollars and cents
Paradox of Value
Water, essential, has little value Diamond, nonessential, has high value
Utility
Capacity to be useful
Wealth
Sum of those economic products that are tangible, useful, transferable from one person to another
Production
The process of creating goods and services
Productivity
The efficient use of productive resources
Specialization
Productive inputs do whatever task they are able to do best
Division of Labor
Workers perform fewer tasks more frequently
Human Capital
The sum of skills, abilities, motivation of people
Economic Interdependence
When the actions in one part of the country or world have an economic impact on what happens elsewhere
Market
A location that allows buyers and sellers to deal in a certain economic product
Factor Markets
The markets where productive resources are bought and sold (where individuals earn their incomes)
Product Markets
Markets where producers offer goods and services (where individuals spend their incomes)
Standard of Living
The quality of life based on the possession of necessities and luxuries that make life easier
Free Enterprise Economy
Consumers and privately owned businesses, instead of government, make the majority of WHAT, HOW, and FOR WHOM decisions
Traits of Free Enterprise
Economic freedom, voluntary exchange, private property rights, and the profit motive
Role of Government in a Free Enterprise
A protector, provider of goods, consumer, regulator, promoter of national goals
Mixed Economy
People carry on their economic affairs freely, but are subject to government regulation
Demand
The desire, ability, and willingness to buy a product
Law of Demand
when prices increase, the quantity demanded decreases
Demand Elasticity
The extent to which changes in price cause changes in the quantity demanded
Economic Variables of Demand
Diminishing Marginal Utility
The more one buys of a product, the less eager they are to want it
Supply
A schedule of quantities that would be offered for sale at all possible prices that could prevail in the market
Law of Supply
Supplies offer more at high prices than at low prices
Supply Elasticity
How changes in quantity supplies are affected by changes in price
Economic Variables of Supply
Cost of Inputs, Productivity, Technology, # of sellers, taxes and subsides, expectations, govt regulations, cost of joint products
Stages of Production
Increasing Returns 2. Diminishing Returns 3. Negative Returns
Fixed Costs
Cost of production that does not change when output changes
Variable Costs
Cost that varies as output changes
Marginal Cost
Extra cost of producing one additional unit of production
Price
Helps sellers decide where to sell, and producers where to buy (signals that allocate resources between markets
Price System
Flexible, provides maximum freedom of choice for everyone, no cost of administration, efficient, understood by everyone
Rationing
Government agencies decide everyone's fair shares
Market Equilibrium
Quantity Supplied = Quantity Demanded
Surplus
Quantity supplied > Quantity Demanded
Shortage
Quantity supplied < Quantity Demanded
TINSTAAFL
"There is no such thing as a free lunch" -> there are o free products, you pay for it in other ways (ex: higher taxes)
How is the price of a good decided?
Wealth, value, and utility
Pillars of a free market
voluntary exchange, private property, profit, economic freedom
capitalism
an economic system based on private ownership of capital
5 characteristics of capitalism
economic freedom, voluntary exchange, private property rights, profit motive, and competition
consumer sovereignty
consumer decides WHAT good and services to produce
What kind of economy does the US have?
mixed economy/modified private enterprise economy: some govt intervention/regulation
elastic
a small change in price causes a big change in # demanded
inelastic
a change in price causes a small change in the # demanded.
determinants of elasticity
time, substitutes, income
causes for change in supply
cost of inputs, productivity, new technology, taxes, subsidies, expectations, government regulations and number of sellers
price floor
if prices are considered too low, steps are taken to keep them higher ex: minimum wage
price ceiling
a maximum legal price that can be charged for a product
Note 
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