econ test review

scarcity

The condition where unlimited wants exceed limited resources.

Needs are required for survival; wants are things people desire but can live without.

the difference between a need and a want

the four factors of production

Land, labor, capital, and entrepreneurship.

land in economics

Natural resources used to produce goods and services.

labor

Human effort and work used in production.

capital

Tools, machines, and technology used to make goods and services.

entrepreneurs

People who combine resources to create businesses and take risks for profit.

trade-off

Giving up one option to gain another.

opportunity cost

The next best alternative given up when a choice is made.

production possibilities curve (PPC)

A graph showing trade-offs between two goods with fixed resources.

Also known as a Production Possibilities Frontier.

Efficient use of all available resources.

What does a point on the PPC represent?

Inefficient use of resources or unemployment.

What does a point inside the PPC show?

Currently unattainable with existing resources.

What does a point outside the PPC represent?

Improvements in technology or increases in resources.

What can shift the PPC outward?

Loss of resources, disasters, or population decline.

What can shift the PPC inward?

The extra benefit gained from one more unit of something.

marginal benefit?

marginal cost

The extra cost from doing or producing one more unit.

Continue when marginal benefit is greater than or equal to marginal cost.

What decision rule do rational people follow with MB and MC?

What is a traditional economy based on

Customs, traditions, and inherited roles.

The Government

Who makes decisions in a command economy?

Voluntary exchange and individual choices.

What drives decisions in a market economy?

mixed economy

A system with both market freedom and government involvement.

What motivates people in a market economy

Profit and self-interest.

Inefficiency and lack of innovation.

What is a common downside of command economies?

Give an example of a traditional economy.

Tribal, indigenous, or subsistence farming communities.

Give an example of a command economy.

North Korea.

Give an example of a mixed economy.

United States

Public wants exceed available resources and revenue.

Why do governments face scarcity?

What to produce, how to produce, and for whom to produce.

What three questions must all economies answer?

You give up the opportunity cost of earning money.

What happens when you choose to study instead of work?

Using resources in a way that maximizes output without waste.

What does efficiency mean in economics?

Through education, training, and skill development.

How does human capital grow?

voluntary exchange

People freely trading goods and services to benefit both sides.

They are determined by supply and demand.

How do prices work in a market economy?

To increase productivity and expand production possibilities.

What is the purpose of capital investment?