Unit 1 Study Guide - Economics

What is scarcity?

Not having enough resources to produce what everyone wants

What are wants?

What we would like to have but don’t need to live

What are needs?

Something you need for survival

What are the three basic questions of economics?

• What to produce?

• How to produce?

• For whom to produce?

What are the four factors of production?

• Land

• Capital (or Capital Goods)

• Labor

• Entrepreneurs

What are goods?

Useful, tangible items

What are services?

Works that are performed for someone

What is utility?

The capacity to be useful and provide satisfaction (not fixed or measurable)

What is value?

The worth of a good or service due to scarcity and utility (solution to paradox)

What is an incentive?

Benefits offered to encourage people to act certain ways

What is a trade off?

The opportunity that you give up when you make an economic choice (usually don’t require all or nothing choices)(giving up something to gain another)

What is opportunity cost?

The value of the next-best alternative or what you give up by choosing an alternative

What does the Production Possibilities Curve illustrate to us?

• The impact of scarcity on an economy

• Efficiency

• Opportunity costs

What is Positive Economics?

Describing and explaining economics as it is, not as it should be (verifiable facts not judgments) (scientific method)

What is Normative Economics?

Describing and explaining what economic behavior ought to be, not what it actually is (value judgements)(used for recommendations)

What is an economic system?

An organized way of providing for the wants and needs of people

What are some characteristics of a Traditional economy?

• Stems from traditions and customs

• Individuals can’t make their own decisions

What are some examples of Traditional economies?

• African Mbuti

• Australian Aborigines

• Inuit of North Canada (Eskimos)

What are some positives of a Traditional economy?

• There is little uncertainty

• Everyone knows their roles

• No question of whats produced, how it’s produced, or for whom things are produced

What are some negatives of a Traditional economy?

• It discourages new ideas

• Economic stagnation

• Same processes and jobs every single day over and over

What are some characteristics of a Command economy?

• Central authority

• Limited private property

• Limited freedom

• Favor towards government officials

What are some examples of Command economies?

• Soviet Union

• North Korea

• Venezuela

What are some positives of a Command economy?

• Can change direction quickly

• Health and public services are easier to get and cheaper

What are some negatives of a Command economy?

• Wants and needs are ignored

• Little to no incentive (jobs are guarantee so employees can do poorly without consequence)

• Large bureaucracy

• Lack of flexibility

What are some characteristics of a Market economy?

• Decisions based on self-interest

• Free to produce what people want

• Based on Capitalism

What are some examples of Market economies?

• The United States

• Japan

• South Korea

• Great Britain

What are some positives of a Market economy?

• Individual freedom

• Adjusts gradually to change over time

• Small government interference

• Decentralized decision making

• Variety

• Increased customer satisfaction

What are some negatives of a Market economy?

• Doesn’t provide for everyone

• Might not provide enough

• Lots of uncertainty

What is a Mixed economy?

An economy that combines elements from Traditional, Command, and Market economies

What is Capitalism?

An economic system based on private ownership of the factors of production

What is Socialism?

An economic system in which the government owns some or all of the factors of production

List and explain 3 Economic and Social goals that an economy wants to be able to give to their people. (All possible options included.)

• Economic Freedom - make their own decisions

• Economic Equity - tradition of justice, impartiality, and fairness

• Economic Security - protection from adverse events

• Full Employment - provide as many jobs as possible (need people working to support the economy)

• Price Stability - dealing with inflation and each person’s need for more money

• Economic Growth - hope for something better, grow and develop economically (advance)

What is Economic Equity?

An economic tradition of justice, impartiality, and fairness (people get their money’s worth)

What is inflation?

A rise in the general level of prices

Why are programs and laws in place like Minimum Wage and Lemon Laws?

To ensure that people are getting justice and equity economically

What are the pillars of the American Free Enterprise?

• Economic freedom

• Voluntary exchange

• Private property rights

• Profit motive

• Competition

What are Private Property Rights?

Rights that allow people to own and control their possessions as they wish

What is a Voluntary Exchange?

The act of buyers and sellers freely and willingly engaging in market transactions

Explain how competition fuels a free enterprise economy.

Businesses will better their product or lower their costs to get people to buy from them which forces other businesses to improve their product or lower their prices

What is profit?

The extent to which persons or organizations are better off financially at the end than they were at the beginning