Introduction to Economics

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