Economics Unit 1 Review

Economics

The study of how society uses limited resources to satisfy unlimited desires

Scarcity

Limited quantities of resources to meet unlimited wants

Entrepreneur

A person who organizes, manages, and takes on the risks of a business.

opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

service

work that is performed for someone

Factors of production

Land, Labor, Capital, Entrepreneurship

(CELL)

Want

An item that we desire but that is not essential to survival

Capital

any human-made resource that is used to produce other goods and services

Resource

Anything that can be used to produce something else

Division of labor

the assignment of different parts of a manufacturing process or task to different people in order to improve efficiency.

3 economic questions

What to produce? How to produce? For whom to produce?

Efficiency

using resources in such a way as to maximize the production of goods and services

Underutilization

the use of fewer resources than the economy is capable of using

competition

the struggle among producers for the dollars of consumers

marginal cost

the cost of producing one more unit of a good

free enterprise

resources are privately owned, competition is welcome, little government control

5 characteristics of free enterprise

Economic Freedom-choice

Private property rights

voluntary exchange

Profit motive

competition

Production Possibilities Frontier (PPF)/curve

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

How can a PPF shift?

changes in resources and/or tech

service

work that is performed for someone

Utility

The capacity to be useful and provide satisfaction

Need

Basic requirement for survival

Invisible hand

A term coined by Adam Smith to describe the self-regulating nature of the marketplace

Resource

Anything that can be used to produce something else

shortage

a situation in which a good or service is temporarily unavailable

free market economy

individuals decide what is made, how it is made, and how much is made

Karl Marx

Founder of communism

Adam Smith

Economist who wrote Wealth of Nations; Laissez-Faire economics, invisible hand

John Maynard Keynes

British economist who thought deficit spending would create jobs and stimulate the economy.

3 economic questions

What to produce? How to produce? For whom to produce?

Economic Security

plans set up for unemployment problems solve worry over loss of jobs, sickness, or injury

Social Security-federal program

free enterprise

resources are privately owned, competition is welcome, little government control

5 characteristics of free enterprise

Economic Freedom-choice

Private property rights

voluntary exchange

Profit motive

competition

Role of Consumer

Decide what to be produced by casting their dollar votes.

Role of Government

protector , provider, regulator, consumer

marginal cost

the cost of producing one more unit of a good

Externality

an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

positive externality

beneficial side effect that affects an uninvolved third party (education, neighbor fixing a fence, neighbor painting their house)

Factor market (resource market)

A market which factors of production are bought and sold

product market

the market in which households purchase the goods and services that firms produce

circular flow diagram

a visual model of the economy that shows how dollars flow through markets among households and firms

mixed economy

An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.

free market economy

an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets and the government plays a small role in the economy.

Command Economies

economic systems in which the government largely decides what goods and services will be produced, who will get them, and how the economy will grow

Law of Marginal Utility

states that a consumer will only buy so much of a given product even though the price is low

law of diminishing returns

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

thinking at the margin

deciding whether to do or use one additional unit of some resource

PPF curve--

it always slopes down and to the right (has a negative slope) because resources are used differently.

individual mandate (ACA)

Required healthy people to join the risk pool and purchase an insurance plan. Removed by Congress.

Bismarck Model of Healthcare

The Bismarck model uses an insurance system and is usually financed jointly by employers and employees through payroll deduction. Unlike the U.S. insurance industry, Bismarck-type health insurance plans do not make a profit and must include all citizens. Doctors and hospitals tend to be private in Bismarck countries. This model is found in Germany, France, Belgium, the Netherlands, Switzerland, and Japan.

Beveridge Model of Healthcare

Health care is provided and financed by government through tax payments, patients never receive a medical bill, many hospitals and clinics are owned by the government, i.e. Britain. Single payer.

National Health Insurance

A plan to provide universal health insurance under which the government provides basic health insurance to all citizens. In most such plans, the program is funded by taxes on wages or salaries.

out of pocket

medical bill that is not covered by insurance and must be paid by the patient

Premium

Amount you pay monthly, quarterly, semiannually or annually to purchase different types of insurance