Korb unit 1

Three Basic Economic Questions

What to produce? How to produce? For whom to produce?

Consumer Goods

Goods intended for final use by individuals (e.g., clothing, food).

Capital Goods

Goods used to produce other goods and services (e.g., machinery, tools).

Goods and Services

Goods are tangible (e.g., cars, phones); services are intangible (e.g., healthcare, education).

Division of Labor

Breaking tasks into smaller parts to improve efficiency; leads to increased productivity.

Opportunity Cost

The next best alternative given up when making a choice.

Production Possibility Frontier (PPF)

Shows maximum output combinations; shifts due to resource changes or technology improvements.

Factors of Production

Land (natural resources), Labor (human effort), Capital (tools/machines), Entrepreneurship (risk-taking innovation).

Adam Smith's Views

Advocated for free markets, the 'invisible hand' guiding supply and demand.

Specialization

Focusing on specific tasks to increase efficiency; decisions based on resources and skills.

Economics

The study of how people use scarce resources to satisfy wants.

Command Economy

Government makes decisions; advantages: stability, equality; disadvantages: inefficiency, lack of choice.

Market Economy

Individuals make decisions; advantages: efficiency, innovation; disadvantages: inequality, potential market failures.

Mixed Economy

Combines market and government control; advantages: balance of efficiency and equity; disadvantages: government intervention can be inefficient.

Traditional Economy

Based on customs; advantages: stability, community; disadvantages: resistance to change, inefficiency.

Voluntary Exchange

Buyers and sellers trade freely in markets, benefiting both parties.

Trade-offs

Giving up one option to gain another.

Standard of Living

Quality of life based on income, goods, and services available.

Free Enterprise Economy

Another term for a market economy with minimal government interference.

Productivity

Measure of output per unit of input; higher productivity leads to economic growth.