Economics Chapter 1 and 2 Study Guide Flashcards

Vocabulary flashcards covering fundamental economic concepts, factors of production, production possibilities, economic systems, key economists, and the circular flow model from Chapters 1 and 2.

Services

Activities that satisfy wants/needs.

Wants

Unlimited desires for goods/services.

Opportunity Cost

Value of the next-best alternative given up.

Producer

Maker/provider of goods and services.

Incentive

Something that encourages a particular action.

Consumer

Buyer/user of goods and services.

Labor

Human time and effort.

Shortage

Short-term lack of goods/services caused by increased demand or a production issue.

Human Capital

Education, skills, training, and knowledge people gain.

Trade-off

All options not chosen.

Needs

Basic requirements for survival.

Utility

Satisfaction or benefit from consuming a good/service.

Economics

Study of how people make choices with scarce resources.

Goods

Physical products that satisfy wants/needs.

Land

All natural resources.

Scarcity

Limited resources to satisfy unlimited wants and needs; everlasting.

Physical Capital

Human-made resources used to produce other goods/services.

Economic System

The way society uses scarce resources to satisfy unlimited wants.

Economic Growth

Increase in production capacity; shown by an OUTWARD/RIGHT PPF shift.

Law of Increasing Opportunity Cost

As production of one good increases, the opportunity cost of additional units increases; represented by a bowed-out PPF.

Inefficient / Underutilization

Point INSIDE the PPF; resources are not fully used, such as unemployment.

Efficient

Point ON the PPF; resources are fully utilized.

Entrepreneurship

Starting/organizing a business, taking risks, and pursuing profit.

Economic Efficiency

Using scarce resources without waste.

Normative Economics

Subjective/value judgments about what SHOULD be; often uses words such as should, fair, or better.

Economic Freedom

Ability to make economic choices.

Positive Economics

Objective statements about what IS; can be tested with evidence/data.

Macroeconomics

Studies the economy as a whole.

Unattainable

Point OUTSIDE the PPF; cannot currently be produced with existing resources/technology.

Microeconomics

Studies individual/smaller parts of the economy.

PPF/PPC

Graph showing the maximum combinations of goods/services that can be produced using limited resources.

Profit / Profit Motive

$\text{Profit} = \text{Revenue} - \text{Costs}$. The desire for profit motivates businesses.

Economic Stability

Safety/security from major economic risks and problems.

Capitalism

System based on private property, markets, individual freedom, competition, profit motive, and voluntary exchange.

Adam Smith

Associated with capitalism/market economy; laissez-faire; Invisible Hand.

Traditional Economy

Decisions based on customs, habits, and traditions; "do what your parents did."

Consumer Sovereignty

Consumers determine what will be produced through their buying decisions.

Voluntary Exchange

Both parties willingly trade because they expect to benefit.

Laissez-faire

Hands-off government approach to the economy.

Economic Equity

Fairness/equal opportunity.

Karl Marx

Associated with socialism/communism; class struggle; command economies.

John Maynard Keynes

Associated with mixed economy; government intervention during economic downturns.

Self-Interest

People make choices based on what benefits themselves; connected to voluntary exchange.

Private Property Rights

Individuals can own/control property and resources.

Market Economy

Individuals/businesses make economic decisions through markets, prices, supply/demand, competition, and consumer choice. Associated with Adam Smith.

Specialization

Focusing on producing what an individual/business/economy is particularly good at producing; increases efficiency/productivity.

Command / Centrally Planned Economy

Government controls economic decisions. Associated with Karl Marx. Example: North Korea.

Mixed Economy

Combines market forces with government involvement. Associated with John Maynard Keynes; connected to the Great Depression.

Factor Market

Market for factors of production: land, labor, capital. Households sell; firms buy.

Product Market

Market for finished goods/services. Firms sell; households buy.

Households

Own resources, sell factors of production, buy goods/services, and receive income.

Firms

Buy factors of production, produce/sell goods/services, receive revenue, and pay costs.

Circular Flow Model

Shows how households, firms, and government are interconnected and how resources and money move through the economy.