Unit 1 Honors Economics Flashcards

Scarcity

Limited quantities of resources to meet unlimited wants of people

Need

Something that is necessary for survival

Want

Item desired, but not essential to survival

Economics

The study of choices & how individuals and societies deal with scarcity

Microeconomics

The study of small economic units such as individuals, firms, and industries

Macroeconomics

The study of large economies as a whole

5 Key Economic Assumptions

• Scarcity

• Trade-offs

• Selfishness

• Marginal costs & benefits

• Models and graphs

Trade-offs

Because of scarcity, choices must be made. These choices will always have a cost

• ALL the alternatives that we give up when we make a choice

Selfishness

Everyone’s goal is to make choices that maximize their satisfaction

Marginal costs and benefits

Everyone makes decisions by comparing the costs and benefits of every choice

Models and Graphs

Real life situations can be explained and analyzed through simplified models and graphs

Marginal analysis (aka thinking on the margin)

Making decisions based on increments

Trade-offs vs Opportunity Costs

Trade-offs: ALL the alternatives that we give up when we make a choice

Opportunity Costs: MOST desirable alternative given up when making a choice

Opportunity costs

MOST desirable alternative given up when making a choice

Utility

Satisfaction

Marginal

Additonal

Allocate

Distribute

Price vs Cost

•Price – amount buyer (or consumer) pays for a good/service

•Cost – amount the seller pays to produce a good

Investment

The money spent by businesses to improve this production

Consumer goods

Created for direct consumption (ex. pizza)

Capital goods

Created for indirect consumption (the goods used to make consumer goods)

4 Factors of Production

• Land

• Labor

• Capital

• Entrepreneurship

Land

All natural resources (Land, water, animals, etc)

Labor

Effort a person devotes to a task for which they are paid

Capital

Human-made resources used to produce other goods or services

Entrepreneurship

Ambitious leaders that combine the other factors of production to create goods and services

Physical Capital

Also known as capital goods. These are human-made goods, such as tools or buildings

Human Capital

These are skills and knowledge gained by a worker through education and experience