Econ test 1 review

Laissez faire

Idea that government should play as small a role as possible in economic affairs.

Capitalism

An economic system based on private ownership of capital

Profit

The financial gain made in a transaction

Nationalize

changing from private ownership to government ownership

Privatize

changing from government ownership to private ownership

Externality

A side effect of a transaction that affects someone other than the producer or the buyer.

Subsidy

A government payment that supports a business or market

Scarcity

Exists when there are not enough resources to satisfy human

wants

Consumer Goods

Products and services that satisfy human wants directly (everything from food and gas to cars and houses)

Specialization

Situation in which people concentrate their efforts in the areas in which they have an advantage

Incentives

Benefits offered to encourage people to act in certain ways

Utility

The benefit of satisfaction gained from the use of a good or service

Trade-off

The alternative that you give up when you make an economic choise

Opportunity cost

Value of the best-best alternative based off of a decision

Efficiency

The condition in which economic resources are being used to produce the maximum amount of goods and services

Economic models

Simplified representations of complex economic activites, systems, or models

Microeconomics

The study of the behavior of individual players in an economy, such as individuals, families, and businesses

Macroeconomics

The study of the behavior of the economy as a whole and involves topics such as inflation, unemployment, aggregate demand, and aggregate supply

Positive economics

A way of describing and explaning economics as it is, not as it should be (involves verifiable facts, not value judgments)

Normative economics

A way of describing and explaining what economic behavior ought to be, not what it actually is (personal judgement)

statistics

numerical date or information

socialism

goal is to distribute wealth evenly,

and the decisions are made by the citizens,

democratically.

communism

goal is to distribute wealth equally, but the people are not trusted to do it. Therefore, the government makes all the decisions of how to distribute the wealth.

market economy

Economic questions are answered by

individual buyers and sellers. Supply and demand

free entereprise system

(capitalism) People act out of self interest; motive for profit (money) drives the economy

What is the invisible hand according to Adam Smith?

Explained the workings of the free

market within capitalist economies (market [No one will produce what someone

won’t buy! No one will sell at a

price consumers won’t pay!)

What are the 4 basic questions society must ask to adress scarcity?

1. What goods and services to produce?

2. How will they produce them?

3. Who will get them?

4. How much will they produce now, and how much later?

What are the 4 factors of production?

Land: Natural Resources

(Water, natural gas, oil, trees)

Labor: Physical and Intellectual

(Labor is manpower)

Capital: things we use to make things (Tools, Machinery, Factories)

Entrepreneurship: Investment (investing time, natural resources, labor and capital are risks with production)

tradtional economy

Economic questions are answered by

habits and customs (passed down to gen to gen)

command economy

The government answers the basic economic

questions (centrally planned economy) Government limits certain choices

mixed economy

market-based economic systems in which the government plays a role. (Regulating industries (such as…)

Regulating minimum wage

Imposing taxes (such as…)

Imposing tariffs

Imposing quotas

Regulating working conditions)

negative externality

negative effect or cost, for people who were not involved in the original economic activity. (pollution in lake affecting ppl who live on lakes)

postivite externality

a positive effect or benefit to people not involved in the original activity. (property value going up bc a school was built near it)