Economics - Unit 1: What is Economics?

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command economy

an economic system in which the government controls a country’s economy

market economy

economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets

consumers decide what gets made, businesses decide how goods are made, whoever can afford it gets it

traditional economy

an economy in which production is based on customs and traditions and economic rules are typically passed down from one generation to the next

oldest and simplest form of an economic system

relying on habits, customs, or rituals

slow to adapt to new ideas or technology

lack modern convenience

communism

a theory or system of social organization based on the holding of all property in common, actual ownership belongs to the community as a whole or to the government

capitalism

an economic system based on private ownership and on the investment of money in business ventures in order to make a profit

mixed economy

an economy in which private enterprise exists in combination with a large amount of government regulation and promotion

a combination of market and command economic systems

scarcity

a situation in which unlimited wants exceed the limited resources available to fulfill those wants

factors of production

land, labor, capital, and entrepreneurship

the four groups of resources that are used to make all goods and services

land

all natural resources used to produced goods and services

labor

human effort directed towards producing goods and services

capital

money for investing in tools of production

production

the process of creating goods and services

economy

a system for producing and distributing goods and services to fulfill people’s wants

needs

things that are required in order to live

wants

desires that can be satisfied by consuming a good or service

services

actions or activities that one person performs for another

goods

items purchased to satisfy needs and wants

entrepreneur

a person who starts up and takes on the risk of a business

economic system

the method used by a society to produce and distribute goods and services

public sector

the part of the economy that involves the transactions of the government

private sector

businesses not associated with government agencies

profit incentive

the driving force that encourages individuals and organizations to improve their material money well-being

social incentive

a motivating factor that affects someone’s reputation in society

natural resources

raw materials supplied by nature

product possibility curve (PPC)

the maximum potential output of a combination of goods an economy can achieve when all its resources are employed, given the level of technology

trade-off

what is being given up

opportunity cost

how much is being given up

basic economic questions

what to produce?

how to produce it?

who gets it?

circular flow model

shows the flow of money and trade relationships between households, factor market, businesses and firms, and product marke

money: households → product market → businesses and firms → factor market → …

factors of production: households → factor market → businesses and firms

finished goods and services: businesses and firms → product market → households

product market

where finished goods and services are bought and sold

factor market

where factors of production are bought and sold

budgeting to zero

income minus your expenses equals zero