G.E.S. Economics Unit (Finalized)

economics

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

1. what goods and services are to be produced?
2. how are goods and services going to be produced?
3. 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