Studied by 20 people
Scarcity
Society not having enough resources to produce all things people want
Why is scarcity important in economics?
Effects all the decisions people make
Define a need, include an example
Basic requirement for survival
Food/water, clothing, and shelter
Define a want, include an example
Something we would like to have but not necessary to survive
Car and designer clothes
Define a good, include an example.
A useful item or product that is used to satisfy a need or want
Tangible item
Book, car, MP3 player
Define services and give an example.
Work or labor performed for someone
Haircuts, home repairs, forms of entertainment: concerts
What do economists mean when they say, “There is no such thing as a free lunch.”
Resources are limited and everything we do has a cost, even when it seems we are getting something for free
Business that gives something away still has to pay for the resources of item so it it charges more for other products to try and cover the costs
You may actually in the end be paying for your free lunch
What are the three basic economic choices societies have to make? Why do societies face these three basic questions?
In order to meet the needs and wants of the people society faces these questions:
What to produce?
How to produce?
For whom to produce?
Define gross domestic product (GDP).
Monetary value for all final goods, services, and structures produced within countries borders during a one year period
Define factors of production.
Resources needed to produce the things we want
Land, labor, capital, and entrepreneurs are all needed to make goods
Define land.
Natural resources
“Gifts of nature”
Define Capital.
Tools used to create goods and services
Define labor.
People with efforts, abilities, and skills
Not entrepreneurs
Define entrepreneurs.
Risk takers who make new products with resources and are looking for profit
Define opportunity cost, include an example
Cost of the next best choice that you gave up
Money, time, resources
Define trade-offs
What are examples of trade-offs for consumers?
Choice given up when one choice is made rather than the other, choice that isn’t picked
On brand or off brand clothing, time with friends or homework
What are the rights of consumers?
Consumerism- movement attempt to educate buyers about purchases they make and to demand better and safer products from producers
Right to safety
Protection against goods that are dangerous to life and health
Right to be informed
Receive information that can be used for reasoned choices and protection against fraud
Right to choose
Right to be protected in markets where competition may not always exist
Right to be heard
Guarantee that consumer interests will be considered when laws are being written
Right to redress
Ability of consumers to receive adequate payment from producers if they are harmed by their products
What are the responsibilities of consumers?
Include important details and copies of receipts, guarantees, and contracts to support your case
Report the problem immediately. Do not try to fix a product yourself, because doing so may cancel the warranty
If you need to contact the manufacturer in writing, type your letter or send an email directly. Keep a copy.
Keep cool. The person who will help you solve your problem is probably not responsible for causing the problem
Keep an accurate record of your efforts to get the problem solved. Include the names of people you have spoken to or written to and the dates on which you communicated
Define and describe a traditional economy.
System in which decisions are made based on the customs, traditions, or rituals inherited from previous generations
Economic system in which the allocation of scarce resources, and other economic activity, is the result of ritual, habit, or custom
Define and describe a command economy.
System in which decisions of what to produce, how and whom are determined by the state
Economic system characterized by a central authority that makes most of the major economic decisions
Define and describe socialism.
Economic system in which the government owns some factors of production and has a role in determining what and how goods are produced
What are some characteristics of command economies and socialism?
Command economy is where a central authority makes the major decisions about what, how, and for whom to produce
King, president, etc.
Socialism is a version of the command economy
Central authority makes the decisions about what, how, and for whom to produce
Socialism is a system in which the government owns some but not all means of production
Government plays major role in answering most of the what, how, and for whom questions
What are the advantages of a command economy?
State controls everything so it can make drastic changes in short amount of time
Due to its population vision, basic services such as education, health, are free but of low quality
What are the disadvantages of a command economy?
Not interested in the needs and desires of consumers
There is no competition so wages are low and there are no incentives to work
There is a lot of bureaucracy which increases costs and slows down processes
The state is not willing to make changes that harm its system
Establishes limitations to the private initiative
What are the characteristics of a market economy?
Individuals and companies carry out the production and exchange of goods and services through transactions involving prices and markets, decisions made by the people for their best interests
Define capitalism.
Economic system in which private citizens own and use factors of production in order to generate profits
Private ownership of resources
Define mixed economies.
Economic system that encompasses the development of private companies and the existence of state-owned companies or public control
The means of production are shared between the private and public sectors
What caused the development of mixed economies?
An economy is mixed as a result of a combination of extreme economic systems such as traditional, command and market systems that are not applicable in real life.
Another reason why an economy is mixed is that it has been shown that due to external causes such as wars, conflicts, natural disasters or recessive economic cycles, a mixed economy has facilities to adjust and devise more effective solutions to these problems with the lowest possible cost.
Finally, one of the elements that makes a mixed economy is its flexibility and its tendency to evolve over time and allowing it to modify or establish new measures or policies that work in current times.
How do different mixed economies answer the what, how and for whom decisions?
Decisions are made by private individuals and businesses, firms
Define communism.
Economic and political system in which factors of production are collectively owned and directed by the state
Theoretically classless society in which everyone works for the common good
States of economic and political affairs where everyone would contribute according to his or her abilities and consume according to his or her needs
Define free enterprise.
Resources privately owned, competition allowed to flourish without much government interference
Identify the characteristics of a capitalistic free economy.
High degree of individual freedom
Adjusts gradually over time
Small degree of government interference
Everyone has a voice in the way the economy is run, decentralized
Variety of goods and services are produced
High degree of consumer satisfaction
Goods are privately owned and they last longer than goods owned by others
Explain economic freedom.
Ability of people in an economy to take their own economic action
Engage with trade with any person of their choosing
Buying and selling goods and property
Choose your occupation, employer, and job location
Free to hire in a business
Make many items of choosing
Define profit.
Difference between the revenue from sales and full opportunity costs of resources involved in producing
Define and explain profit motive.
The driving force that encourages individuals and organizations to improve their material well-being
Define and explain competition.
A rivalry between two or more businesses trying to sell products to the same customer or market
One company sells for a lower price taking away the business from the other company
Why are entrepreneurs an important part of a free enterprise economy?
They are willing to take risks and start a new business, they are the catalyst or the starting point for the economy
Describe consumer sovereignty.
A characteristic of a market economy that gives consumers the power to decide what businesses produce
The ability that all individuals have when going to market and consuming to determine what goods they will buy and which ones they will not.
Consumer will ultimately have the decision of what to produce in the economy
Why are consumers an important part of a free market economy?
Consumers compete for goods and services
Answers are answered by the consumers
What, how, and for whom
Define regulator.
Someone or something that controls activities
Government in businesses and in the world
Describe the role of the government as a protector.
Enacting and upholding consumers rights through legal framework ensuring that producers don't exploit their consumers.
Describe the role of the government as a provider.
It provides the essential public goods like defense, etc which private players fail to provide.
Describe the role of the government as a regulator.
It regulated the market to keep it competitive and prevent misuse of power by market players. Thus it ensures that consumers finally get what they want and at the best possible price.
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Flashcard (51)