Econ quiz

Economics

Study of how individuals, groups, or nations allocate scarce resources to satisfy unlimited wants and needs

Allocate

Make decisions/ decide

Limited resources

Factors of production

Unlimited wants and needs

Goods and services

Factors of production

Land, labor, capital (anything that can be used to make something else), entrepreneurship

Opportunity costs/trade offs

All decisions involve choices- which involve costs, every choice has a cost, what you lose by choosing something else

Marginalize

Cost/benefit of adding 1 more factor- thinking about the next thing

Scarcity

The basic economic problem, not enough (not a shortage), but a resource that is always going to be there and decisions have to be made on how to use it

Law of increasing opportunity cost

It becomes more costly (less efficient) to continue producing the same item, occurs because a rational person will use their most efficient resources first

Comparative advantage

The ability to produce goods or services at a lower opportunity cost than a competitor, know ow t calculate and what it means

Absolute advantage

The ability to produce more of a good or service than a competitor

Theory of comparative advantage/ specialization

Specialization (focusing on producing one thing) and free trade will benefit trading partners, even those that may be more efficient producers

Production possibilities frontier

Graph that demonstrates all possible combinations of production of two items, if resources are used efficiently. Graph demonstrates choices, opportunity cost efficiency and inefficiency, and the law of increasing opportunity cost

Productive efficiency

Making full use of resources

Allocative efficiency

Producing what a society needs/desires- wise or unwise decisions

3 economic questions

What will be produced?

How will it be produced?

Who receives the benefits?

How are economic systems defined

Who gets to answer the economic questions and/or the factors of productio

Free market economics

Decisions made by individuals

Command economies

Government decides how to answer questions

Incentives

Rewards or penalties that encourage people to act in a certain way, reason to do/not do something. Can be positive (encourage someone to continue to do something) or negative (encourage someone to stop doing something)

Economic incentives

Material gain or loss

Social incentives

Reputation gain or loss (external- what other people think)

Moral incentives

Conscience gain or loss (internal- what you think)

Criteria for judging economic outcomes

Economic goals: efficiency, growth, security/stability, equity. Goals may be incompatible/in conflict with each other

Economic efficiency

Using resources to their fullest potential

Economic growth

Increase in he production of goods/services or profits

Economic security/stability

A condition of having stable income or other resources to support a standard of living now and in the foreseeable future

Economic equity

Fairness on how resources are distributed

Externalities

Costs or benefits resulting from activity imposed on bystanders, can be positive or negative

Internalizing externalities

Process of making the party responsible for the external cost or benefit is taken into account when decisions are made

Drop in the bucked problem

Public goods are usually so expensive, it doesn’t depend on any single individuals

Free rider problem

People can enjoy benefits without paying for them, are usually unwilling to pay

Types of economies

Traditional, socialism, communism

Traditional economies

Families, local communities make the key decisions/control factors of production

Economic socialism

Government makes the key economic decisions/controls factors of production

Economic communism

“The people” collectively make the key economic decisions/controls factors of production