Studied by 9 peopleeconomics
the study of how rational decision-makers (people) choose to use resources
goods
items you can buy and physically touch
services
work done for other people for a fee
consumers
someone who buys and uses products
producers
someone who makes goods or provides services
scarcity
a situation in which people want more of something than there is available that occurs because resources are limited
needs
things that are required in order to live, for example: food, water, clothing, and shelter
wants
things that add comfort and pleasure to your life that are not required for survival, for example: extra clothes
land, labor, capital, entrepreneurship
4 factors of production
opportunity cost
the most desirable alternative given up as the result of decision. scarcity forces decisions.
trade-off
all the alternatives that are given up as the result of a decision.
costs
all of the things that are bad about a decision
benefits
all of the things that are good about a decision
3 fundamental economics questions
what goods and services are to be produced?
how are goods and services going to be produced?
who is going to receive what is produced?
six economic goals
economic freedom, economic efficiency, economic equity, economic growth, economic security, economic stability
traditional, command, market
3 types of economies
traditional economy
economic decisions are made based on tradition
command economy
economic decisions are made by the government
market economy
economic decisions are made by private businesses or individuals
characteristics of U.S. economy
economic freedom, competition, property rights, profit motive, limited government, binding contracts
supply
the ability and willingness of sellers to make products and services available for supply
demand
the amount of goods and services that people will buy
quantity supplied
the maximum quantity of a good sellers are willing to sell at a given price
quantity demanded
the maximum quantity of a good buyers are willing to buy at a given price
law of supply
the quantity supplied will increase when the price is raised and will decrease when the price is reduced
law of demand
when price increases, the quantity demanded decreases
market clearing price
the price at which the quantity demanded equals the quantity supplied
supply curve
a line graph that shows the quantity of good supplied at various prices
demand curve
a line graph that shows the quantity of goods demanded at various prices
surplus
a situation that occurs when the price is above the market clearing price. supply then exceeds demand and market price falls.
shortage
a situation that occurs when the price is below the market clearing price. demand then exceeds supply, so the market price will rise.
market equilibrium
a situation in an economy when the quantity demanded equals the quantity supplied
price floor
a price control that prevents the price from falling below a certain level which helps sellers
price ceiling
a price control that prevents the price from going above a certain level which helps buyers
substitute goods
goods that are used in place of one another
complementary goods
goods that are usually bought together
substitute goods rule
if the price of a good increases, the demand for it's substitute will also increase.
complementary goods rule
if the price of a good rises, demand for both goods will go down
capitalism
an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state. also known as free enterprise system.
comparative advantage
the ability to produce goods and services more efficiently than competitors, also described as the ability to produce goods and services with the lowest opportunity cost
absolute advantage
the ability to produce goods and services with fewer resources than competitors
Adam Smith
Scottish philosopher and economist who was a key figure in the Scottish Enlightenment. He published a book called "The Wealth of Nations" that describes what builds a nations wealth.
incentives
financial rewards provided to people to alter consumption and production patterns in an economy
productivity
the amount of goods and services a person or business can produce in a given time. also described as the measure of the output to the input
division of labor
the action of separating work into individual tasks to promote specialization and increased production of goods and services
specialization
a focus on producing one thing or one part of a thing. this increases productivity and makers workers better trained and more efficient. the disadvantages include that it leads to uninteresting jobs and workers take less pride in their work
profit incentives in capitalism
the desire to earn profits from business activity, it creates a competitive environment where producers try to be the low-cost producer of a certain good
the invisible hand
a metaphor for a self-regulating economy where people get what they need by pursuing their own self-interests. it guides the market and symbolizes that the market will take care of itself without government interference.
self-interest
things that will bring you personal gain or benefit
competition
the struggle of producers to gain money from consumers, this incentivizes them to create better products and/or lower their prices
lassiez faire economics
an economy in which the government does not interfere in the economy by imposing regulations like taxes or restrictions on those who could trade
international trade
the exchange of goods and services between two countries. countries trade because they cannot efficiently produce everything themselves, so they trade their products for other countries' products to satisfy their needs/wants
globalization
the increasing interdependence of countries around the world
globalization pros
increased access to goods and services
globalization cons
opinion: some people believe it allows outsiders to steal profits and jobs, thus hurting workers
inputs
the scarce resources that go into the production process
outpoots
the goods and services created using the inputs of the production process
human capital
the knowledge and skill that people gain from education, on the job training, and other experiences
financial capital
wealth used to invest in stocks, bonds, real estate, or businesses in order to produce future wealth
capital goods/physical capital/capital
tools, machines, and factory buildings that help increase productivity
utility
the satisfaction or pleasure one gains from consuming a product or service or from taking an action
marginal utility
the extra satisfaction or pleasure you will get from an increase of one additional unit of a good or service
law of diminishing marginal utility
as the quantity of a good consumed increases, the marginal utility of each additional unit decreases
production possibilities frontier (PPF)
an economic model in the form of a line graph that shows how an economy might use its resources to produce two goods
production possibilities curve
it represents the best that a certain economy can do with its current factors of production
economic freedom
the ability to make our own economic decisions without interference from the government. this goal prioritizes individualism rather than collective well-being.
economic efficiency
a focus on maximizing resource allocation to meet the most people's needs and wants. societies with this goal strive for full employment because unemployed workers are a wasted resource
full employment
a level of employment reached when anyone able and willing to work has a job
economic equity
a focus on fair and just distribution of a society's wealth. there are no universal criteria for what is "fair and just". societies must consider their own values to determine what is equitable
economic growth
a focus on increasing production of economic goods and services from one period of time to another. consistent economic growth generally improves standards of living. often, increases in capital goods, labor force, technology, and human capital can all contribute to economic growth
economic stability
a focus on creating a consistent, predictable environment for citizens, including an uninterrupted supply of goods and services and predictable prices
property rights
the rights an individual has to their own property that protects against property seizure. this includes protections of intellectual property such as patents and copyrights
limited government
part of the US economy's structure in which the government does not control individual companies or compete with them.
mixed economy
both the government and individuals play important roles as consumers and producers
binding contracts
once an agreement between the buyer and seller is agreed upon, the law requires both of them to hold up their end of the contract
revenue
the amount of money a firm receives in the course of doing business
demand shifters
Changes in income, changes in the number of consumers, changes in consumer tastes and preferences, changes in consumer expectations, changes in the price of substitute goods, changes in the price of complementary goods
supply shifters
Changes in the cost of inputs, changes in the number of producers, changes in conditions due to natural disasters or international events, changes in technology, changes in producer expectations, changes in government policy
market supply
the sum of all quantities supplied by all producers
market demand
the demand by all the consumers of a given good or service
demand elasticity
the responsiveness of consumers to changes in price
supply elasticity
the responsiveness of producers to changes in price
economic growth, economic freedom, economic efficiency
3 economic goals of a market economic system
economic stability
1 economic goal of a command economic system
economic security, economic stability
2 economic goals of a traditional economic system
Note 
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