econ test 1

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economic problem

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Mr. Maj

86 Terms

1

economic problem

although your wants are unlimited, the resources you want are scarce

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2

scarcity

not enough resources to satisfy people's unlimited wants

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3

capital goods

human creations (machines) used to produce goods and services

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4

productive resources

inputs that produce the goods and services people want

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5

economics

how people use their scarce recourse to satisfy their unlimited wants

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6

human resources

-all human effort/work

-physical labor or mental ideas

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7

profit

revenue from sales minus cost of production

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8

entrepreneur

someone who takes a risk to earn a profit (develop a product or create a new way to produce something more efficiently)

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9

natural resources

raw materials supplied by nature

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10

renewable resource

can be used indefinitely if used wisely and allowed sufficient time to recover

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11

exhaustible resource

once used, they're used up (not renewable)

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12

goods

something you can feel and touch (tangible)

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13

services

not physical, uses scarce resources to satisfy human want (intangible)

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14

“no free lunch”

nothing is ever "free" because every good and service requires scarce resources (everything costs someone something)

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15

economic theory

a simplification of economic reality used to make predictions about the real world

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16

rational self-interest

customers maximize expected benefit given the cost, or minimize cost for benefit

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17

normative

someone's opinion (can't be shown to be true/false based on reference to facts)

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18

positive statement

factual statements (ability to find out if true/false by referring to facts)

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19

marginal cost

cost to consumer or producer for each additional unit

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20

marginal benefit

revenue or enjoyment of each additional unit

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21

microeconomics

focuses on your economic behavior and the economic behavior of individuals and firms

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22

macroeconomics

performance of the economy as a whole

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23

choice

decision makers will continue to acquire information as long as the marginal benefit from information exceeds marginal cost of gathering it

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24

markets

where buyers and sellers carry out exchange where they buy and sell things

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25

circular flow chart

knowt flashcard image
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26

types of market participants

-households

-firms

-governments

-rest of world

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27

opportunity cost

value of the best alternative you must pass up

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28

sunk cost

cost you already paid but can never recover no matter what you do

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29

economic system

the set of mechanisms and institutions that resolves the what, how, and for whom questions for an economy

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30

pure market economy

-private firms own ALL means of production

-no gov involvement

-private groups own ALL resources

-prices generated in free and competitive markets

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31

invisible hand

no gov or institution is coordinating the market

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32

monopolize

producers work to drive out competition and work with competitors to raise prices (higher prices=more profit)

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33

"no public goods"

public goods benefit everyone but individual firms don't want them because they can't sell them/earn a profit or keep people from use of it

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34

externalities

costs that aren't considered when an item is produced

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35

economic fluctuations

-when markets both expand and contract (consumers and producers feel the pain of recession)

-no safeguard because of no gov

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36

rules of the game

laws when there is no gov involved (i.e. don't steal, don't murder, etc.)

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37

pure command economy

economy controlled by the gov (i.e. communist russia, north korea)

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38

visible hand of central planners

-gov setting prices

-resources are allocated

-told what to produce

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39

problems with command economies

-no competition market

-directing production through state run industries

-prices set by central planners

-goods and services may be rationed

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40

little freedom of choice

less freedom with decisions; might tell people where to work

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41

central planning can be inefficient

-central planners choose what to grow (can lead to inefficiency)

-no incentive to make a profit (resources can be wasted)

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42

environmental damage

-gov not concerned about environment

-since no one owns it, we will use it all up

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43

no role for entrepreneurs

since gov owns ALL resources, there is no goal for anyone seeking a profit

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44

mixed economy

a little bit of central planning and competitive markets (ie the US)

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45

market economy

competitive markets play majority role in setting prices (some gov control: health regulations, zoning, consumer regulations)

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46

transitional economy

shifting from command economies to market economies (or vice versa) (ie China)

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47

privatization

converting gov enterprises into private enterprises

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48

traditional economy

economies shaped by custom or religion (i.e. caste system in india)

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49

2 types of goods in PPF

  1. consumer

  2. capital

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50

production possibilities frontier (PPF)

shows possible combination of 2 types of goods that can be produced when resources are employed efficiently

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51

simplifying assumptions

-single snapshot in time

-no new innovation

-rules of game/legal system are fixed

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52

efficiency

-maximum possible output from available resources (no more than 1 type of good can be produced without reducing amount of alternative product)

-measure through comparative advantage, specialization)

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53

law of increasing opportunity cost

with each additional increment of a good produced requires economy to give up successfully larger increments of another good

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54

constant cost curve

cost of producing an additional good is the same regardless of where you are along the curve

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55

improvements in "rules of the game"

-formal and informal institutions that support the economy (laws, law enforcement, etc.)

-encourage people to be productive

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56

comparative advantage

ability to produce a good/service for a lower opportunity cost than a competitor

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57

absolute advantage

ability to produce more of a good/service than a competitor

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58

law of comparative advantage

the worker with lower opp. cost of producing a particular output should specialize in that output

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59

specialization

allows the workers to become more efficient

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60

bartering

a system of exchange where products are exchanged directly for other products

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61

division of labor

organizing the production process so each worker specializes in a separate task so the group can produce more

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62

households

everyone that lives together under one roof (single economic decision maker)

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63

utility

level of satisfaction of happiness

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64

firms

an economic unit formed by a profit seeking entrepreneur who combines resources to produce goods and services and accepts the risk of profit and loss

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65

transaction costs

cost of time and information required for exchange

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66

property rights

a legal claim that guarantees an owner the right to use a resource or charge others for its use

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67

intellectual property rights

protect creators of new ideas and inventions

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68

patent

laws to protect inventors and new devices or processes

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69

copyright

assigns property rights to written (original) expression

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70

trademarks

property rights to unique commercial symbols and marks

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71

measurements and safety

-ensure that weights and measures are standardized

-agencies that protect consumers and firms: i.e. FDA and CPSA

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72

market competition

-when they are a monopoly, they are able to charge higher prices

-businesses work to acquire smaller businesses to make more profit

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73

anti-trust laws

-laws that work to reduce anti-competitive behavior and promote competitive markets

-ways to prevent monopolies

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74

regulating natural monopolies

where one firm can serve an entire market at a lower per unit cost then 2 or more firms can

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75

fiscal policy

-a fed gov's use of taxing and public spending to influence the macroeconomy

-affects our interest rates (makes more expensive to take out loans)

-ie. medicare, medicaid, and national defense

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76

monetary policy

-controlled in US by federal reserve

-federal reserve attempts to control the money supply to influence the macroeconomy

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77

private goods

-rival in consumption

-exclusive: nonpayers can be excluded

-once consumed by ONE person, it can't be used by someone else

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78

public goods

-non-rivalrous

-non-exclusive: hard to exclude non payers

-once produced they are available to all (i.e. police force, public roads)

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79

natural monopoly goods

-non-rivalrous

-exclusive

-multiple people can consume it at once (i.e. cell service, tv subscriptions)

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80

externalities

things that appear as a result of interaction in the company

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81

negative externalities

-byproducts of production or consumption that impose costs on third party (i.e. pollution)

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82

positive externalities

-byproducts that benefit producers and consumers (i.e. education)

-when they are positive externalities, gov will try to increase levels of production that will be chosen privately

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83

open access good

-rival in consumption

-non-exclusive bc difficult to regulate (i.e. natural resources like water)

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84

median income

-middle income when a group of incomes is ranked lowest to highest

-in a market economy, workers will have different incomes based on the job they have

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85

programs for the poor

programs designed to help people who lose income due to retirement, temporary unemployment, or inability to work due to injury or disability

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86

we live in ___, but most of the world lives in ___

relative poverty, abject poverty

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