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273 Terms
What is economics?
The study of how people use limited resources to satisfy unlimited wants.
What is scarcity?
Resources are limited, but human wants are unlimited.
What are the four factors of production?
Land, labor, capital, and entrepreneurship.
What is land?
Natural resources used in production, such as water, soil, and minerals.
What is labor?
The physical and mental work people do to produce goods and services.
What is capital?
Human-made tools used to produce goods and services, such as machines, buildings, and equipment.
What is entrepreneurship?
Organizing resources, starting businesses, and taking business risks.
What is opportunity cost?
The value of the next-best alternative you give up when making a choice.
What is a trade-off?
Giving up some of one thing to get more of another.
What is productivity?
The amount of output produced using a certain amount of resources.
What is specialization?
Focusing on producing a particular good or performing a particular task.
What is division of labor?
Dividing production into smaller tasks performed by different workers.
What are the three basic economic questions?
What to produce, how to produce it, and who receives what is produced.
What is a market economy?
An economy where buyers and sellers make most production and purchasing decisions.
What is a command economy?
An economy where the government makes most major economic decisions.
What is a traditional economy?
An economy where customs and traditions guide economic decisions.
What is a mixed economy?
An economy that combines private markets with government involvement.
Who was Aristotle?
An ancient Greek philosopher who studied exchange and wealth acquisition.
Who was Xenophon?
An ancient Greek writer who discussed household management, wealth, and economic organization.
Who was Thomas Aquinas?
A medieval theologian who studied economic morality, just prices, just wages, and usury.
What was Scholastic economic thought?
Medieval religious thinking about the morality and fairness of economic activity.
What is a just price?
A price considered fair according to the moral and social standards of the time.
What is usury?
Historically, charging interest on loans, which medieval religious thinkers often criticized.
What was mercantilism?
An economic philosophy that emphasized national wealth, precious metals, exports, and government control of trade.
How did mercantilists measure national wealth?
By how much gold and silver a country possessed.
What did mercantilists want countries to do with exports and imports?
Increase exports and restrict imports.
What is a trade surplus?
When a country exports more than it imports.
What is bullionism?
The belief that accumulating gold and silver is a major measure of national wealth.
What is protectionism?
Protecting domestic businesses from foreign competition through policies such as tariffs and quotas.
What is a tariff?
A tax on imported goods.
What is an import quota?
A limit on the amount of a product that can be imported.
What is colonial mercantilism?
A system in which a mother country used colonies for raw materials and markets for its finished products.
What is a favorable balance of trade?
Exports exceed imports.
What role did governments play under mercantilism?
Governments encouraged exports, restricted imports, and supported domestic industries.
What is a government-granted monopoly?
When the government gives a business exclusive rights to sell a particular good or service.
What is rent-seeking?
Trying to gain special benefits through political influence or government rules rather than by creating additional economic value.
What is the main criticism of mercantilism?
It can encourage trade restrictions and protect inefficient businesses.
Who were the Physiocrats?
An 18th-century French school of economic thought that believed land and agriculture were the primary sources of national wealth.
Who was François Quesnay?
A leading Physiocrat who studied how income and production flowed through the economy.
What did Physiocrats believe created wealth?
Agriculture and the productive use of land.
What did Physiocrats believe about manufacturing and trade?
They considered agriculture the main source of new wealth.
What does laissez-faire mean?
"Let things take their own course." It supports limited government interference.
What was the Tableau Économique?
Quesnay's model showing how income and economic output circulated through society.
How were Physiocrats different from mercantilists?
Physiocrats emphasized agriculture and land; mercantilists emphasized gold and trade surpluses.
Who was Adam Smith?
A Scottish economist often called the father of modern economics.
What famous book did Adam Smith publish in 1776?
The Wealth of Nations.
How did Adam Smith define national wealth?
Through a nation's productive capacity and output.
What is the invisible hand?
The idea that self-interest in markets can benefit society unintentionally.
What is self-interest in economics?
Making choices to improve one's own situation.
What is laissez-faire economics?
An approach favoring limited government interference in markets.
Who was Jean-Baptiste Say?
A classical economist associated with Say's Law.
What is Say's Law?
The principle that "supply creates its own demand."
Who was David Ricardo?
A classical economist known for his work on international trade.
What is comparative advantage?
The ability to produce something at a lower opportunity cost than another producer.
Who was Thomas Malthus?
An economist who argued that population could grow faster than the food supply.
Who was John Stuart Mill?
A classical economist and philosopher who wrote about production and distribution.
Who was Karl Marx?
A thinker who criticized capitalism and studied class conflict.
Who is the bourgeoisie in Marx's theory?
The capitalist class that owns businesses and resources.
Who is the proletariat in Marx's theory?
The working class who sell their labor for wages.
What is surplus value?
The value created by workers beyond what they are paid.
What is the reserve army of labor?
Marx's term for unemployed or underemployed workers.
What is the labor theory of value?
A theory connecting a product's value to the labor required to produce it.
What was the Marginal Revolution?
A late-19th-century shift toward explaining economic value using marginal utility.
Who were three major figures in the Marginal Revolution?
Carl Menger, William Stanley Jevons, and Léon Walras.
Who was Carl Menger?
An Austrian economist who developed marginal utility theory.
What is neoclassical economics?
An approach emphasizing supply and demand and individual choices.
Who was John Maynard Keynes?
An economist who argued that insufficient spending can cause prolonged recessions.
What is Keynesian economics?
An approach emphasizing aggregate demand and government policy.
What is the historical order of the major schools?
Ancient Greek thinkers → Scholasticism → Mercantilism → Physiocrats → Classical economics → Marx → Marginal Revolution → Keynesian economics.
What is a Production Possibilities Curve (PPC)?
A graph showing maximum combinations of two goods an economy can produce.
What does a point on the PPC represent?
Productive efficiency, meaning resources are used efficiently.
What does a point inside the PPC represent?
Inefficient production or underused resources.
What does a point outside the PPC represent?
An output combination that is unattainable with current resources.
Why is the PPC usually bowed outward?
Due to the law of increasing opportunity cost.
What is the law of increasing opportunity cost?
Producing more of one good requires larger amounts of another good.
What causes movement along the PPC?
Shifting existing resources from one good to another.
What causes the PPC to shift outward?
Better technology, more resources, improved worker skills.
What causes the PPC to shift inward?
A loss of resources or productive capacity.
Why do capital goods help future economic growth?
They increase the economy's future productive capacity.
What is productive efficiency?
Producing goods with the least possible waste or cost.
What is allocative efficiency?
Producing goods and services that best match society's preferences.
What is utility?
The satisfaction a consumer receives from a product.
What is total utility?
The total satisfaction from all units consumed.
What is marginal utility?
The additional satisfaction from consuming one more unit.
What is the law of diminishing marginal utility?
Each additional unit usually provides less extra satisfaction than the previous unit.
Does diminishing marginal utility mean total utility always decreases?
No, total utility can continue rising, but by smaller amounts.
What is a production function?
A relationship showing how inputs are turned into output.
What is the short run?
A period when at least one production input is fixed.
What is the long run?
A period long enough for all production inputs to be variable.
What is total product?
The total amount of output produced.
What is marginal product?
The additional output created by adding one more unit of a variable input.
How do you calculate marginal product?
Change in total output divided by change in the quantity of the input.
What is average product?
Total output divided by the quantity of an input.
What is the law of diminishing marginal returns?
Adding more of a variable input to fixed inputs eventually causes marginal product to decrease.
What happens in Stage 1 of production?
Production becomes more efficient as inputs are added.
What happens in Stage 2 of production?
Marginal product is positive but declining.
What happens in Stage 3 of production?
Marginal product becomes negative, reducing total output.
What are fixed costs?
Costs that do not change with output in the short run.
What are variable costs?
Costs that change with output.
What is total cost?
Total fixed cost plus total variable cost.