Unit Exam - Economics

Economics

study of how people try to satisfy seemingly unlimited and competing needs and wants through careful use of relatively scarce resources

Need

basic requirement for survival

Want

something we’d like to have but isn’t necessary for survival

Good

useful, tangible item; can be used to satisfy need/want

Value

A worth that can be expressed in dollars and cents

Adam Smith’s Definition of Value

Scarcity + Utility = Value

Paradox of Value

an economic concept that describes the difference in price between essential and non-essential goods. It's based on the idea that water, which is essential for human life, is cheaper than diamonds, which are not essential for human life. 

Production Possibility Curve

a graph that shows the maximum amount of two goods that can be produced using a given set of resources and technology

Four Factors of Production

Producing goods and services requires the use of resources, all resources can be classified as one of these factors

Land

All natural resources that are used to produce goods and services. Anything that comes from mother nature (Water, Sun, Plants, Oil, Wood)

Labor

Effort a person devotes to a task for which that a person is paid. (Manual laborers, lawyers, doctors, teachers, etc.)

Physical Capital

A human made resource that is used to create other goods and services (tools, tractors, machinery, buildings, factories, etc.)

Human Capital

Any skills or knowledge gained by a worker through education and experiences (college degrees, vocational training, etc.)

Entrepreneurship

Ambitious leaders that combine factors of production to create goods and services (Henry Ford, Bill Gates, Inventors, Franchise owners, etc.)

Trade-offs

All the alternatives that we give up whenever we choose one course of action over others (Ex. buying a fridge or an airfryer)

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen. (Ex. If you buy an airfryer instead of a fridge you can cook food better, but you lost the opportunity of keeping your food cold.) The value of the option not taken.

Scarcity

When the demand for a good or service is greater than the supply, limiting the choices available to consumers.

This term creates value according to Adam Smith.

Product Market

The marketplace where households act as buyers, purchasing goods and services produced by businesses, completing the cycle by providing revenue back to the firms which allow them to continue production and pay wages to households in the factor market.

This market acts as the point where goods and services are exchanged for money between consumers and producers.

Factor Market

Where households supply factors of production (labor, land, capital) to firms in exchange for income (wages), acting as the platform where businesses acquire the resources needed to produce goods and services. Crucial to the continuous flow of money and goods within the economy.

(PPC) Plotted below curve

Feasible but not efficient

(PPC) Plotted on curve

Feasible and Efficient

(PPC) Plotted above curve

Efficient but not feasible

What does Marx think about Free will?

Karl Marx believed that people have free will and the potential to transform the world, but that modern society limits their ability to do so.

Marxist freedom is Collective and Economic in nature.