Chapter 1 Economics: What is Economics? | Quizlet

What is economics?

a social science that studies how to face scarcity while allocating limited resources to fulfill unlimited wants and needs. It studies the interaction of humans in the commercial market

What is opportunity cost?

a trade-off; what individuals are losing when making choices

What is marginal utility?

the additional satisfaction that comes from personal use. The first unit of something you consume will be more satisfactory than the second or third unit

What is the invisible hand?

external factors that influence business decisions

What is elasticity of demand?

the variation in the quantity demanded in relation to either a price or non-price determinant

What is the problem of scarcity?

resources are limited while human wants and needs are unlimited, forcing individuals to make decisions which leads to opportunity cost

What happens when resources are limited?

less quantity is produced, making goods more expensive

What is supply?

the quantity of goods that producers are willing to supply at different prices

What is the relationship between quantity supplied and price?

a positive relationship; at higher prices, producers will supply more

Who sets the price in the market?

the market sets the price, not the producers

What is demand?

the quantity of goods and services that people are willing to buy at different prices

What is the relationship between quantity demanded and price?

a negative relationship; as price increases, quantity demanded decreases

What is market equilibrium?

the intersection point between the demand and supply graph where quantity supplied equals quantity demanded

What is a market?

a place where goods and services are traded

What does macroeconomics study?

the behavior of the entire market, including inflation, unemployment, and economic growth

What does microeconomics study?

the behavior of individual households, firms, and markets, more related to individuals

What are the types of economies?

market, command, mixed, traditional

What defines a free-market economy?

private sectors regulate resource allocation without interference, and the price system guides production

What are the advantages of a free-market economy?

choice from a variety of jobs and goods, high-quality products due to competition, and satisfaction of consumer needs

What are the disadvantages of a free-market economy?

monopoly risks, discouragement of public goods, increasing gap between rich and poor, and overproduction of demerit goods

What defines a planned economy?

the government sets prices and controls the labor market, focusing on public goods needed by the community

What are the advantages of a planned economy?

provides basic needs, creates equality, and allocates resources to satisfy priorities

What are the disadvantages of a planned economy?

lacks innovation, inflexibility, no competition, and lack of freedom

What defines a mixed economy?

combines the command and free-market economy to satisfy needs with both private sector expertise and government intervention

What are the advantages of a mixed economy?

combined efforts for economic solutions, financial support for merit goods, restriction of demerit goods, and meeting community interests

What are the disadvantages of a mixed economy?

conflicts between private and public sectors, and limitation of private sector returns

What are the 9 main concepts in economics?

scarcity, choice, efficiency, equity versus equality, economic well-being, sustainability, change, interdependence, intervention

What is scarcity in economics?

limited resources to fulfill unlimited wants and needs

What is choice in economics?

the need to choose which wants and needs to satisfy

What is efficiency in economics?

minimizing waste of resources to maximize production

What is the difference between equity and equality in economics?

equity means everyone gets what they need; equality means everyone gets the same

What is economic well-being?

the living standards that individuals should receive within an economy, including income, wealth, employment, and shelter

What is sustainability in economics?

ensuring current needs are satisfied without compromising future generations

What is change in economics?

modifying choices due to new factors

What is interdependence in economics?

the interrelated activity between different economic individuals

What is intervention in economics?

government involvement in the market to ensure the best market mechanism

What are scarce resources that must be allocated?

land, labor, capital, entrepreneurship

What are free goods?

goods that exist in nature, are widely available, and can satisfy unlimited needs (e.g., sunlight, water)

What are economic goods?

goods that have an opportunity cost and are widely available

What are the basic economic questions?

what should be produced, how should it be produced, and for whom should it be produced

What is the Production Possibilities Model (PPC)?

a model used to represent how economic decisions should be made to allocate limited resources to produce specific goods

What concepts are related to the PPC?

scarcity, trade and choices, opportunity cost

What are the main assumptions in the PPC?

static amount of resources, constant technology, 2 variables, any point inside the curve is inefficient, uses all resources available, points outside the curve are not possible without change

What is increasing opportunity cost?

the concept that as you produce more of one good, you have to give up increasingly more of another good

What is the simple circular flow of income model?

a model showing the flow of money and goods/services in an economy without including government or banks

What do clockwise arrows represent in the circular flow of income model?

money

What do anti-clockwise arrows represent in the circular flow of income model?

goods and services

What is leakage in the circular flow of income model?

money being taken away from the market

What is injection in the circular flow of income model?

money being added to the market

What is VAT?

value-added tax, a common tax collected by the government

What must financial leakages equal in the circular flow of income model?

injections, for the economy to work at its full potential