Econ- chapter 1: what is economics?

scarcity

the condition that results from society not having enough resources to produce all the things people would like to have

economics

the study of how people try to satisfy seemingly unlimited and competing wants through the careful use of relatively scarce resources

need

a basic requirement for survival (food, clothing, shelter, etc.)

want

something we would like to have, but is not necessary for survival

TINSTAAFL

there is no such thing as a free lunch

TINSTAAFL

the idea that, although something is marketed as free, there is always someone who has to pay for the resources that produced the product (ex: bogo)

what, how, and for whom to produce

What are the three basic questions asked when producing a good?

factors of production

resources required to produce things we would like to have

land, capital, labor, and entrepreneurs

The factors of production are…

land

“gifts of nature,” or natural resources not created by people

fixed

Do economists think of “land” as being fixed or unfixed? (limited or unlimited?)

capital

the result of production

capital goods

manufactured goods that are used to produce other goods and services, such as tools, equipment, machinery, and factories

labor

people with all their efforts, abilities, and skills

birthrates, immigration, famine, war, and disease

What factors have historically had an impact on the quality and/or quantity of labor?

entrepreneur

a risk taker in search of profits who does something new with existing resources

they are the people who start new businesses or bring new products to the market

Why are entrepreneurs thought to be the driving force in an economy?

description, analysis, explanation, and prediction

What are the four key elements to the study of the social science of economics?

GDP

gross domestic product

gross domestic product (GDP)

the dollar value of all final goods, services, and structures produced within a country’s borders in a 12-month period

gross domestic product

What is the most comprehensive measure of a country’s total output and a key measure of a nation’s economic health?

the economic activity that it describes

What does economics analyze?

jobs, prices, trade, taxes, and government spending

What does economics describe?

good

a useful, tangible item, such as a book, car, or compact disc player, that satisfies a want

consumer goods

goods intended for final use by individuals

durable good

any good that lasts three years or more when used on a regular basis

nondurable good

and item that lasts for fewer that three years when used on a regular basis

service

work that is performed for someone

value

a worth that can be expressed in dollars and cents

paradox of value

scarcity was necessary for something to have value, yet, scarcity by itself could not fully explain how value is determined (diamonds valued higher that water, although water is a necessity and diamonds are not)

utility

the capacity to be useful and provide satisfaction (not measurable, and may vary from one person to the next)

is must be scarce and have utility

What are the requirements for something to have monetary value?

wealth

the accumulation of products that are tangible, scarce, useful, and transferable from one person to another

no- they are intangible

Are services counted as wealth?

market

a location or other mechanism that allows buyers and sellers to exchange a specific product

factor market

where the factors of production are bought and sold

factor markets

Where do individuals earn their incomes?

product markets

where producers sell their goods and services

the circular flow of economic activity

the continuous exchange of goods, services, and money between businesses, product markets, individuals, and factors markets

economic growth

when a nation’s total output of goods and services increases over time

productivity

What is the most important factor contributing to economic growth?

productivity

a measure of the amount of goods and services produced with a given amount of resources in a specific period of time

human capital

the sum of people’s skills, abilities, health, knowledge, and motivation

by providing education and healthcare

What are some ways governments can invest in human capital?

division of labor

a way of organizing work so that each individual worker completes a separate part of the work (more efficient for a worker to do one task many times than to do many tasks in the same period of time)

specialization

when factors of production perform only tasks they can do better or more efficiently than others

the division of labor

What makes specialization possible?

economic interdependence

we rely on others, and others rely on us, to provide most of the goods and services we consume, meaning events in one part of the world often have a dramatic impact elsewhere

the U.S. economy

What economy has a remarkable degree of economic interdependence?

trade-offs

What is present in every decision we make?

opportunity cost

the cost of the next-best alternative

production possibilities frontier

a diagram representing various combinations of goods and services and economy can produce when all its resources are in use

economic model

simplified equation, graph, or figure showing how something works

cost-benefit analysis

a way of comparing the costs of an action to the benefits received

free enterprise economy

an economy in which consumers and privately owned businesses, rather than the government, make the majority of the what, how, and for whom decisions

standard of living

the quality of life based on the ownership of the necessities and luxuries that make life easier