Economics Unit test

What is economics? What is the study?

The study of how induvial and nations make choices about how to use resources to fill their wants and needs. Economics is the study of scarcity.

What is Scarce/scarcity?

Scarce means rare. The idea that people and nations do not and cannot have enough income, time, or resources to satisfy their every desire.

What do people respond to?

Incentives

Difference between needs and wants?

Needs is something that people MUST have to survive (food, sleep, and shelter) and wants is everything else

What is an incentive?

A thing that motivates or encourages one to do something

What are the 3 economic questions?

What to produce ( what to make with limited resources ) | How to produce ( how to produce the items) | For whom to produce (how should it be allocated, distributed to the people in the society)

What’s the difference between a good and a service?

A good is that you can have, hold, and touch while a service is

What are the four factors of production?

Land, Capital ( Tools, equipment, machinery, and factories) , Labor (Skill, effort, and abilities), entrepreneurs

What is value?

The worth of a good or service expressed in dollars and cents

What is wealth?

Wealth is the total value of all assets owned by a person, company, or country

What makes an item valuable?

It must have utility and scarcity

What is utility?

The good or service capacity to provide satisfaction, which varies with the needs and wants of each person

What is the Paradox Value?

A contradiction in economics. Some have little monetary value but high utility while others have high monetary value but minimum utility.

Trade-offs

“alternative choices” —> there are positive and negative advantages

What is an opportunity cost?

When choosing a trade off the option you decided not to choose is the opportunity cost. a” The money, time, or resources a person gives up or sacrifices to make his final choice. “

Scarcity

The idea that people and nations do not and cannot have enough income, time, and resources to satisfy their desires.

Incentive

A thing that motivates or encourages one to do something

Economies

The study of how individuals makes choices based off scarce resources to fill their wants and needs

Needs

Things that are necessary for survival | Sleep, food, and shelter

Wants

Are everything else other than needs

Factors of production?

Land, labor, capital, and entrepreneur | Resources required to produce goods and services

Financial Capital

Money, credit, and funding a business or individuals used to create profit

Gross Domestic Product

The total value of goods produced and services provided in a country during one year

Economic Product

Good services that is useful, satisfies a want or need, and is scarce

Good

Thing you can have, hold, and touch

Service

Work for someone else

Consumer good

Goods bought and used by consumers, rather than by manufactures for producing other goods

Capital Good

Tangible asset, like machinery, equipment, building, or software, purchased by a business to produce other goods or services for sole

Value

The worth of a good or services expressed in dollars and cents ( scarcity and utility )

Paradox of value

Some necessities have little monetary value while non-necessities items have higher value

Utility

A good or service capacity to provide satisfaction, which varies with needs and wants of each person

Wealth

The total value of all assets owned by a person, company, or country

Factor Market

Input market —> Business purchase the factors of production needed to produce goods and services

Product Market

A place or platform where goods and services are bought and sold

Economic Growth

More people have more goods and services | Meeting peoples needs

Productivity

A measure of the amount of valuable outputs ( good, services, or work) produce in relation to the amount of input ( factors of production) used to create it

Division Of labor

An economic and social system where a complex production process if broken down into many smaller task where each worker/group is assigned to a specific task

Specialization

focuses on the production of a limited scope of goods to gain greater degree of efficiency

Human capital

Value of a workers experience and skills

Economic interdependence

The mutual dependence of the participant in an economic system who trade in order to obtain the products they cannot produce

Trade off

(alternative choice) Many alternatives to help decide on a final decision based on pros and cons

Opportunity Cost

The cost of the next best alternative use of money, time, or resource when once choice is made rather than another

Cost benefit analysis

A way of thinking about a problem that compares the costs of an action to the benefits received

Free enterprise economy

Consumers and privately owned businesses, rather than the government making the WHAT,HOW, and FOR WHOM decisions

Standard of living

The quality of life based on the repossession of the necessities and luxuries that make life easier

Economy / What are the 3 types

An economic system is an organized way of providing for the wants and needs of their people / 3 types are traditional, command, and market

What is an traditional Economy?

Its based off of ritual, habit, and customs. The roles are defined from ancestors and elders and production is gained through trade.

What is an command economy?

A central government has a controlling which prevents economic freedom and prioritizes needs over unnecessary wants. With the benefit of rapid changes. / communist dictorship

What is a market economy?

A market economy is leaded by self interested individuals. Consumers have the freedom to vote through their purchases and it focuses on creating everyone wants over needs. / Democratic society

Capitalism

Market where economy is private citizens own the factors of production | Adam smith

Socialism

Society and government work hand in hand to control / distribution

Communism

A system where its entirely controlled by a government | karl marx

Free enterprise

There is limited government interference and businesses are free to compete

Voluntary exchange

Both buyers and sellers believe that the good or service being exchange is more value than the money or product given | profited transaction

Private property Rights

Motivates people to succeed. Any rewards you earn are kept by you, people have strong incentives to innovate

Profit

A financial gain, the difference between the amount earned and the amount used

Profit Motive

Encourages entrepreneurs and responsible for the growth of free enterprise

Competition

Rivalry between customers’ and profits | better prices

Consumer sovereignty

The role of the consumer/ruler of the market

Mixed economy / modified private enterprise

People carry on their economic affairs freely, but are subjected to some government intervention and regulation

Monopoly

One company has entire control over the supply of a good or service

Sole proprietorship

Business owned by one person | Smallest type of business but most numerous. Easy to start but the one person it responsible for its successes and fails.

Unlimited liability

Fully responsible for all losses and debts of the business

Inventory

A stock of finished goods and parts in reserve to satisfy customers or to keep production flowing smoothly

Limited life

Firm legally cease to exist when the owner dies, quits, or sells business

Partnership

A business joined by two or more people. Least numerous form of business organization

Limited partnership

One partner is not active in the daily running of the business, although they help contribute through money

Bankruptcy

A court granted permission to an individual or business to cease or delay debt payments

Corporation

A form of business organization recognized by law as a separate legal entity having all the rights of an individual

Charter

Government document that gives permission to create a corporation is granted

Stock

a share of ownership in a company, allowing you to be a part-owner or shareholder

Stockholder/shareholder

Who can share in the profits and losses of the business

Stock market

a global network where buyers and sellers trade shares of stock

Dow Jones

a stock market index that act as a simple benchmark to track the US economy

Dividend

A share of the company’s profits

Bond

a writer promises to pay the amount borrowed at a later date

Principal

The initial sum of money that is borrowed, loaned, or invested, and serves as the basis for calculating interest reutrn’s

Interest

A person ability to share in the net income, net loss, or similar profits of a partnership and to receive payouts from it, no voting

Merger

When companies merge business

Income statement

A financial report showing a business revenues, expenses, gains, and losses over a time period to determine its net profit or loss

Net income

The amount of profit a business or individual has left after all expenses taxes, and other mandatory deductions from total revenue or gross income

Depreciation

The decrease in value due to aging, changing its cost and for tax and accounting purpose’

Horizontal merger

merging companies that produce similar products

Vertical merger

Businesses of different companies merging together with raw materials

Conglomerate

A corporation that owns at least four business, each making unrelated

Multinational

Makes products in different countries / expand their markets buy selling their products or service sin many different countries

TINSTAAFL

There is no such thing as a free lunch | Nothing is free since the process to provide free items required a cost process

3 basic economic questions

What to produce, How to produce, for whom to produce

Relationship Between value, utility, and wealth

Value is the worth of a food or services expressed in dollars and cents, Wealth is the total value of all assets owned by person, company, or country. And for something to be valuable it must be scarce and contain utility.

Advatange’’ and disadvantages of traditional

Advantages: Everyone knows what role to play, organizing the members of the community and life is stable and predictable | Disadvantages: discourages new ideas, lack of progress, lower living standards, and punished for acting indifferent

Advantages and disadvantages of Command

Advantages: changes are rapid and free health and public services provided for society | Disadvantage: does not meet the wants of consumers, no incentive for people to work. relies on a system of government of make decisions for everyone, no flexibility to deal with minor issues.

Advantages and disadvantages of market

Advantages: adjust gradually, individual freedom, lack of government interference, decentralized decision making, varitey of goods and services, consumer satisfaction | Disadvantages: dosen’t provide for the basic needs for everyone in society, not enough of valuable services, uncertainty within workers and businesses, market economy failing due to competition, moveability of resources

Free entreprise charactersitcs’s

Voluntary exchange, private property rights, profit motive, competition,

Four roles of the government

Protector, Regulator, provider and consumer, and promoter of national goals

3 types of businesses

Sole proprietorship, partnership, and corporation

Advantages and Disadvantages of sole propreitorship

Advantages: Ease of starting up, easy management, enjoy profit of successful w/o sharing profit, no need to separate business income taxes because its non legal entity, personal satisfaction, and ease of getting out of business |

Disadvantages: Unlimited liability ( responisble for debts), difficulty in raising financial capital, size and efficiency, limited material experience, difficulty attracting empploye’s, limited life

Advantages and disadvantages of partnership

Advantages: Ease of establishment, management, lack of special taxes on partnership, attracting financial capital more easily than proprietorships, larger size, attraction top talent

Disadvantages: Responsibilities, conflict between partners, and

Advantages and disadvantages of corporations

Advantages: Raising financial capital, hire professional managers to run the firm, limited liability for its owners, unlimited life

Disadvantages: Difficult and expenses of getting a charter, little say on how its ran, double taxation of corporate profits, and more government regulations