econ review

Scarcity

Limited amounts of goods and services are available to meet unlimited wants.

Economics

The study of how people satisfy their needs and wants by making choices.

Factors of Production

The resources used to make all goods and services.

Land

All natural resources used to produce goods and services (e.g., oil, minerals, trees).

Labor

All human time, effort, and talent (e.g., workers, skills).

Capital

Any human-made resources used to produce goods (e.g., equipment, factory, tools).

Entrepreneur

Individuals who use the other factors of production to produce a product (risk-takers and innovative).

Trade-offs

The act of giving up one benefit in order to gain another benefit, a better one.

Opportunity Cost

The next best alternative given up when a choice was made (most desirable rejection).

Marginal Cost

The extra cost of adding one unit, like sleeping in one more hour.

Marginal Benefit

Extra benefits of adding the same units, as long as it outweighs the cost it is worth adding the extra units.

Production Possibilities Curve (PPC)

Illustrates the economic concept of opportunity cost.

Efficiency

The use of resources in such a way to maximize the output of goods and services.

Underutilization

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

Current Production Possibilities

The economic concept represented by the PPC.

Point on the PPC

Represents that all resources are being fully utilized.

Point inside the PPC

Represents underutilization of the resources.

Point outside the PPC

Represents an unattainable production point with current resources.

Bowed Out PPC

Indicates that the economy is growing.

Law of Increasing Opportunity Cost

As production shifts to making one item or another, more resources are needed to increase production on the second item.

Three Key Economic Questions

What goods to produce, how should they be produced, and who is consuming the goods.

Traditional Economy

Based on traditions, beliefs, and customs to determine the goods and products that are created.

Specialization

Situation in which people concentrate their efforts in the activities they do best.

Market Economy

An arrangement where buyers and sellers determine prices for goods and services.

Capitalism

Based on private citizens using their resources for private gain.

Role of Government in Capitalism

The government plays a targeted role in the economy.

Incentives

The hope of reward or fear of penalty that encourages a person to behave in a certain way.

Adam Smith

Provided insightful analysis to elevate economics to the status of science; father of economics.

Invisible Hand Theory

The interaction and exchange between different members in terms of goods and services traded.

Competition

Struggle among producers to get the dollars of consumers; changes based on who the consumers are and who is making the decisions.

Consumer Sovereignty

Consumers have the power to decide what gets produced.

Centrally Planned Economy

The government answers the three basic economic questions.

Command Economy

Opposes private property, free market pricing, competition, and consumer choice.

Mixed Economy

Economic system that has some market-based elements and some government involvement.

Voluntary Exchange

Allows consumers and producers to decide what, when, and how they buy and sell.

Private Ownership of Goods

Gives people the rights to control their possessions and use them as they wish.

Property Rights

Rights that vary depending on the economic system.

Utility

Something being of use.

TINSTAAFL

Acronym meaning "There's no such thing as a free lunch," indicating everything costs money.

Promoting Economic Growth

By using incentives to get producers to sell.

Mutual Benefit

It works for everyone.

Important Factor in Choosing a Good or Service

Pricing and value for money.