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All choices are organized in what is called an ________
Economy
What is an economy?
The organized way that a country provides for the wants and needs of its people
Why does an economy exist?
Because choices exist, an economy acts to organize choices
What is economics?
The study of people producing and exchanging scarce resources to get the goods and services that they want and need
What are goods?
Physical products that can be purchased; a product that can be touched
What are services?
Work that one person performs for another for payment; a product that can not be touched
What is scarcity?
Not enough resources to satisfy everyone needs and wants
What are factors of production?
The resources necessary to produce products
What are resources?
The basic elements used to produce goods and services
What are the 4 types of resources?
Land, labor, capital, and entrepreneurship
Define Land
Unaltered gifts of nature; minerals, timber, fresh air, etc.
Define Labor
Physical and mental abilities and efforts people use to create goods and services
Define Capital
Resources made and used by people to produce and distribute goods and services
Define Entrepreneurship
The combination of vision, skill, ingenuity, and willingness to take risks that is needed to create and run a new business
What are the 3 main fundamental economic questions?
What to produce, how to produce it, for whole to produce for
Because people can not have everything they want, they must make ______________
Trade-off’s
What is a trade-off?
The alternative given up when an economic choice is made
What is the model called that economists use to clarify trade-off’s?
Production possibility curve (PPC)
What do PPC’s do?
This is a diagram that represents the various combinations of goods or services an economy can produce when all productive resources are fully employed
What is opportunity cost?
The value of the next best alternative, or what you give up by choosing one alternative over another.
Every trade-off has costs and benefits but a trade-off is not necessarily an all or nothing choice. This is called ____________
Marginality
What is marginality?
The additional cost or benefits of a decision
What is marginal cost?
The cost of using one or more unit of a good or service.
What is marginal benefit?
The benefit or satisfaction of using one more unit of a good or service
What is a traditional economy?
A system in which the basic economic questions is answered by traditions and customs
What is command economy?
A system in which the basic economic questions is answered by the government
What type of countries are command economies found in?
Dictatorships and communist countries
The philosophy of ____ ____ greatly shaped the command economy
Karl Marx
What is a market economy?
A system in which the basic economic questions is answered by the free market
Define Market
Anywhere a voluntary exchange takes place
Define Voluntary Exchange
The action without obligation of trading resources in a market for good or service
The philosophies of ____ ___ greatly shaped the market economy
Adam Smith
Define Mixed Economy
Economic system that has elements of the above 3 types of economies
What is Circular Flow?
A diagram that maps the way a market economy operates
What does circular flow represent?
The high degree of interdependence in our economy.
What flows in one direction (counter clockwise) while goods, services, and factors of production flow in the other direction?
Money; goods, services, and factors of production
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