Economics and Personal Finance H Final Exam

Topic 1-3.8, 6.1, 6.3, 8.3, 9.1, 9.3, 9.4 (economics book) and Finance vocab

need

something essential for survival

want

something we desire that is not essential for survival

goods

physical objects that someone produces

services

actions or activities that one person performs for another

scarcity

the fact that there are limited goods and services to fulfill unlimited wants

economics

the study of how people seek to satisfy their wants and needs by making choices

shortage

when consumers want more of a good or service than producers are willing to make available at a particular price (demand is more than supply)

entrepreneurs

people who decide how to combine resources to create new goods and services

factors of production

resources used to make all goods and services (land, labor, capital)

land

a factor of production that consists of all natural resources used to produce goods and services

labor

a factor of production that consists of the effort people devote to tasks for which they are paid

capital

a factor of production that consists of any human-made resource that is used to produce other goods and services

physical capital

human made objects used to create other goods and services

human capital

the knowledge and skills a worker gains through education and experience

trade-off

the act of giving up one benefit in order to gain another, greater benefit

“guns and butter”

a term used to describe the common choice governments face: spending money on military or domestic needs

opportunity cost

the most desirable alternative somebody gives up as the result of a decision

thinking at the margin

the process of deciding whether to do or use one additional unit of some resource

cost/benefit analysis

a decision making process in which you compare what you will sacrifice and gain by a specific action

marginal cost

the extra cost of adding one unit

marginal benefit

the extra benefit of adding one unit

production possibilities curve

a graph that shows alternative ways to use an economy’s productive resources

production possibilities frontier

a line on a production possibilities curve that shows the maximum possible output an economy can produce

efficiency

the use of resources in such a way as to maximize the output of goods and services (B, D,C)

underutilization

the use of fewer resources than the economy is capable of using (A)

law of increasing costs

an economic principle which states that as production shifts from making one good or service to another, more resources are needed to increase production of the second good or service

economic system

the structure of methods and principles a society uses to produce and distribute goods and services

factor payments

the income people receive in return for supplying factors of production

profit

the amount of money a businessreceives in excess to its expenses

safety net

a set of programs to protect people who face unfavorable economic conditions such as layoffs, injuries, or natural disasters

What are the economic goals of a society?

efficiency, freedom, security, equity, growth

standard of living

level of economic prosperityinnovation

innovation

the process of bringing new methods, products, or ideas into use

traditional economy

relies on habit, custom or ritual to answer the three basic economic questions

What are the three basic economic questions?

What goods and services should be produced? How should these goods and services be produced? Who consumes these goods and services?

market

any arrangement that allows buyers and sellers to exchange things

specialization

the concentration of the productive efforts of individuals and businesses on a limited number of activities

free market economy

an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets

households

a person or group of people living in a single residence

firms or businesses

an organization that uses resources to produce a product or service which it then sells

factor market

the area of exchange in which firms purchase the factors of production from households

product market

the arena of exchange in which households purchase goods and services from firms

Adam Smith

competition and self-interest fuel a marketplace and help to keep it functioning

self interest

a persons own personal gain

incentive

the hope of reward or fear of penalty that encourages a person to behave in a certain way

competition

the struggles among producers for the dollars of consumers

price competition

producers compete to offer the lowest price for a good that is identical to goods made by other producers

non-price competition

producers compete by offering higher quality goods or goods with different features

consumer sovereignty

consumers have the power to decide what gets produced

socialism

a range of economic and political systems based on the belief that wealth should be distributed evenly throughout a society

communism

central government owns and controls all resources and means of production and makes all economic decisions

authoritarian

limits individual freedoms and requires strict obedience from their citizens

laissez-faire

the doctrine that government generally should not intervene in the marketplace

centrally planned economy

also called command economy, an economic system in which the government makes all decisions on the three key economic questions

private property

property owned by individuals or companies and not by the government

intellectual property

creations, such as books, songs, or symbols, that consist of ideas rather than physical objects

mixed economy

an economic system that has some market-based elements and some government involvement

economic transition

a period in which a nation moves from one economic system to another

privitazation

selling enterprises operated by the government to individuals

profit motive

the incentives that drives individuals and business owners to improve their material well-being

open opportunity

anyone can compete in the marketplace

legal equality

the principle that everyone has the same legal rights