Economic Fundamentals

Flashcards covering economic fundamentals, including scarcity, factors of production, opportunity costs, marginal analysis, economic systems, and the role of government.

Scarcity

The condition where there are not enough productive resources for everyone to have what they want; to be scarce, something must be limited, desirable, and have multiple uses.

Scarcity Formula

$$\text{Unlimited Wants \& Needs} + \text{Limited Resources} = \text{Scarcity}$$

Factors of Production

The four productive resources used to make goods and services: Land, Labor, Capital, and Entrepreneurship.

Land

All resources that come from the earth.

Labor

All human work.

Capital

All man-made resources, categorized as physical (tools) or human (education/training).

Entrepreneurship

The risk-taking, business-owning resource.

Positive Incentive

An incentive that makes you want to do something, functioning like a reward.

Negative Incentive

An incentive that makes you not want to do something, functioning as a punishment.

Shortage

A temporary lack of needed or wanted resources that can be eliminated by raising the price.

Trade Offs

Everything you give up when you make a decision.

Opportunity Cost

The best alternative given up or the value of your alternative choice when a decision is made.

Marginal Analysis

The process of making a rational decision by looking at the margin, which equals "one more" of something.

Marginal Benefit

The benefit gained from producing one more unit.

Marginal Cost

The cost associated with producing one more unit.

Production Possibilities Curve (PPC)

A model showing production choices with a set amount of resources; operating on the curve represents efficiency, while inside represents unemployment of resources.

Specialization

Concentrating the productive efforts of individuals and firms on a limited number of activities, leading to division of labor.

Voluntary Exchange

Willingly exchanging goods and services for mutual benefit.

Input

Something used to make a good or service.

Output

The finished good or service produced.

Productivity

The relationship between input and output; it increases by decreasing inputs and increasing outputs.

Market Economic System

A system where individuals make choices and own resources with no government regulation.

Command Economic System

A system in which a central government dictates permissible levels of production and prices and owns the resources.

Mixed Economic System

A combination of command and market systems where both individuals and government make decisions; most modern systems like the US and China are mixed.

Traditional Economy

An economy that relies on habits, customs, or rituals and is often based on family and gender lines.

Free Rider Problem

A situation where individuals consume more than their fair share of a public resource or pay less than their fair share of the costs.

Transfer Payments

The redistribution of income where tax dollars from one group help pay for others, such as Social Security, Medicare, and Medicaid.

Regulation

When the government requires private businesses to do something, such as health and safety requirements via the FDA.

Deregulation

The removal of government restrictions on businesses to promote competition, historically seen in airlines and telecommunications.

Externalities

Costs or benefits resulting from an economic activity that affects third parties; governments correct for these by making businesses pay full costs, such as pollution restrictions.