Economics unit 1 terms

Economics

study of choice; how a society allocates scarce resources to achieve max satisfaction (wants and needs)

Want

something we would LIKE TO HAVE but is NOT NECESARY for survival (cheeseburger)

Need

BASIC REQUIREMENT for survival (food, shelter, water, air, clothing)

microeconomics

choices made by INDIVIDUALS, HOUSEHOLDS, AND BUSINESSES/ FIRMS, small scale

Macroeconomics

LARGER SCALE, economy as a WHOLE, GOVERNMENT policy and decision (unemployment and inflation)

Goods

tangible/ PHYSICAL product

Services

action/ performance experienced by the consumer

Scarcity

human wants are greater than the capacity of available resources to provide for those wants, FUNDAMENTAL ECONOMIC PROBLEM facing all societies

Criteria to be considered scarce

Desirable and with limited quantity, wants>quantity available

Sunk cost

money already SPENT and CANNOT BE RECOVERED, should NOT be a part of decision making

3 economic questions

what to produce, how to produce, for whom to produce

problem of scarcity

unlimited wants/needs but limited resources

Factors of production

the resources we need to make all goods and services

4 elements of the factors of production

land, labor, capital, entrepreneurship

Land

all the NATURAL RESOURCES found on the planet, not processed by humans (fertile land, water, oil, timber)

Labor

physical effort put into making goods or providing services

Capital

any human-created resource that is used to produce other goods/ services

Physical capital

tangible/ human made stuff that aids in production (tractor)

Human capital

knowledge and skills (knowing how to plow land skill)

Entrepreneurship

process of launching/ running a business in order to make money (who's in charge?), takes on financial risk and should know other 3 factors of production

Gross Domestic Product (GDP)

measured in $, all FINAL products including goods and services, only measures things produced WITHIN COUNTRY'S BORDERS

4 types of economic systems

traditional, market, mixed, command

Market system

INDIVIDUALS, rather than the state, own most resources; includes land, labor, and capital

Traditional market

system where all goods and services are driven by BELIEFS AND CUSTOMS

Command economy

production, investment, prices, and incomes are determined centrally by government

Trade-off

options we GIVE UP to OBTAIN WHAT WE WANT

Opportunity cost

cost of the SECOND CHOICE that you gave up to get what you wanted, value of your forgone opportunity is the real cost of the decision

TINSTAAFL

There Is No Such Thing As A Free Lunch, there is ALWAYS an opportunity cost

Cost benefit analysis

way of thinking about a choice that compares the cost of the action to its benefits (when making decisions, Olympics)

Production Possibility curve (PPC)

combination of things that can be produced when ALL RESOUCES ARE BEING USED, using all resources to produce something (dots on the line are efficient)

Cost of Idle resources

if you produce at the inefficient dot, you're NOT FULLY UTILIZING ALL YOUR RESOURCES

Constant opportunity cost

An opportunity cost that remains the same as consumers shift purchases from one product to another along a straight-line budget

Increasing opportunity cost

Once all factors of production are at maximum output and efficiency, producing more will cost more than average. AS PRODUCTION INCREASES, OPPORITUNITY COST INCREASES