Unit 1 Review: Basics of Economics

Economics

The study of how people seek to satisfy their wants and needs by making choices

Scarcity

People have unlimited wants but the resources to satisfy those wants are limited.

Factors of Production FOPs

The inputs (resources) people use to produce goods and services

Opportunity Cost

The VALUE of what was given up— What could have been done with what was sacrificied (next best alternative)

Trade Off

What is GIVEN Up in order to get something else

Capitalism

(Closest to a pure market economy- Sometimes also called Free Market or Free Enterprise) Economy where there’s PRIVATE ownership of the FOPS and the markets answer the 3 economic questions, the role of the government is LIMITED

Communism

(Developed by Karl Marx and total government control— Sometimes also called Command or Authoritarian Socialist) The government decides how to answer the 3 economic questions and determins prices and production levels

Traditional Economy

Economy that relies on habit, custom or ritual to answer the 3 econmic questions

Socialism

Where the government controls the major economic industries but private ownership of FOPs still exists

Competition

Rivalry between businesses trying to win customers by offering lower prices, better quality or unique porducts

The United States, Japan, Hong Kong

Example of country with Capitalism Economy

Example of Country following Communism

China, Cuba, North Korea, Vietnam, Laos, former Soviet Union

Example of Country with Traditional Economy

The Amish, Native American tribes, tribal regions in other countries

Example of Country with Socialism Economy

Canada, England, France, Sweden

Invisible Hand of Self Interest (Created by Adam Smith)

People/ Businesses wiill provide quality products and acceptable prices because it’s in their best interest to do so

Factor Market

The buying and selling of Factors of Production, Household are sellers, firms are buyers, determines price and quantity of FOPs

Product Market

The buying and selling of finished products. Firms are sellers, Households are buyers, determines pric and quantity of goods and services

Factor Payments

The income a business pays to people in exchange for productive resources- or factors of production- they provide.

Circle Flow Model

Capital

Man made factors used in business and manufacturing

Entrepreneurship

A risk taker who combines the other FOPs to create a new business or product

Land

The land itself and natural resources that come from it

Labor

A Human Resource (Work done by people) 

Factor Payment of Labor

Wages

Factor Payment of Capital

Interest

Factor Payment of Entrepreneurship

Profit

Factor Payments of Land

Rent

Examples of Capital

Factories, Equipment,Technology

Examples of Entrepreneurship

Bill Gates, Kylie Jenner, Any business owner large or small

Examples of Land

Crude Oil, Timber, Crops

Examples of Labor

Teachers, Doctors, Construction Workers, Any Worker

Production Possibilities Curve PPC

Shows all the possible combinations of production using given resources

Opportunity Cost Formula

3 Basic Economic Questions

What goods and services to produce, How to produce the goods and services? For whom are the goods and services produced?

7 Basic Principles