Economics Scarcity, Production, & Trade Offs Flashcards

Scarcity

The condition in which there are limited resources, but nearly unlimited wants and needs for those resources

Who does scarcity affect? What does it force societies to do?

Everyone. It forces societies to make decisions about how they’ll use their limited resources, what to produce, how to produce it, and how to allocate it.

Shortage

Condition in which there are fewer products than needed for the amt of demand for them. A temp condition that is easily changed.

Glaring difference between shortage and scarcity?

Shortage affects consumer demand. Scarcity affects production

What is a product? EX of what isnt a product?

Goods and services that are useful, scarce, and transferable. Non EX would be Wisdom

Consumer, capital, durable, and nondurable good?

Consumer/final-Good meant for customers

Capital-Good used to produce consumer/final goods

Durable-Good that lasts 3+ years

Non-Durable-Good that lasts less than 3 years

Land

Natural resources used to produce goods/services

Labor

Ppl hired to do a job/engage in profession

Capital

Tools of production

Physical, financial, and human capital

Physical-Machines, technology, factories

Financial-Business assets, money

Human-Knowledge, education, skills used by workers,

Entrepreneurs

People who start new businesses (they take risks)

How to increase production?

Increase inputs

Increase productivity (produce more for less)

How to improve productivity?

Make efficient use of factors of production

Increase output w/o increasing use of inputs

Division of labor

Specialization

Invest in human capital/technology

What is TINSTAAFL?

Acronym that explains how nothing of value is free. Everything has cost

It can mean many things, from just explaining that there is no free lunch→declaring that all things have value, and none can be obtained w/o a cost

Ex of costs?

Making sumn free and shifting the burden of one group who pays→another

Tax payers pay for other people’s classes

Honest people pay for thieves

Trade-Off

Alternative choices that must be sacrificed when one choice is made over another.

In essence, it is the choice you make regarding how to use something scarce

Produces lost opportunites

Opportunity Cost

Cost of the decision to use a resource measured by next best alternative use of that resource

Watching tv instead of studying, opportunity cost is the lower grade on test.

The effect of your choice is the value of the next best use of your resource

Production Possibilities Frontier Curve

Graph that shows the maximum output possibilities of any two goods/categories of goods

X, Y, and A/B/C meanings in the PPFC

X-Result of underproduction, wasted resources, high unemployment…

Y-Unachievable. Would lie outside of the curve

ABC-Possible combinations of production between two products that are efficiently utilized

What does PPF demonstrate?

Opportunity Cost in specific numbers of decision or produce more of one that @ expense of other

Product and Factor Markets

Product-Where consumer goods and services are bought/sold

Factor-(same as resource market) where factors of production are bought/sold

Value, and what adds value?

Worth of sumn measured by market

Scarcity and utility add value

Utility

Abilty of product to be useful and provide satisfaction

Another word for benefit

Capitalism

Private ownership of the factors of production where capital owned and controlled by private individuals/businesses with little govt interference

Associated with free market

Free market system (free enterprise system)

Competition is encouraged, little govt influence, promotes economic freedom, supply and demand decide prices

Economic Freedom

Freedom to become an entrepreneur, start businesses, work when you want…

little govt interference

sets economic context that allows for strong economy and opens door to innovation

Voluntary exchange

Act of buyers and sellers willing exchanging goods and services for money

Properties of Voluntary exchange?

Both sides benefit from the transaction or no transaction occurs

Price is determined by customer willingness to pay and producer willingness to sell at agreed amt

Entrepreneurs are rich because we chose to give them money for their products/services

Private Property Rights

You own and control both tangible and intangible items

EX: Car/house, skills/ideas

Importance of PPR?

Acts as collateral for entrepreneurs to take out loans and start new businesses

Ability to own is incentive to work, focuses attention on improvement, and helps support innovation b/c companies r protected in rights of ownership

Profit Motive

How much a business makes minus what it spends to actually produce goods/services business makes money from

Meaning and importance behind PM?

It is the motivation the possibility of success creates

Acts as motor to economy as ppl experiment & innovate to create things in pursuit of better life

Incentive to work hard, drives us to acquire more

How are PPR and PM related?

PPR allow us to keep what we earn, and PM drives us to acquire more money

Competition

Entrepreneurs compete for profits because of the free reign given to them by economic freedom

Decreases prices, increases quality of goods, increases variety, encourages efficient use of products

Benefits of free markets

Consumers get what they want

Standards of living increased

More innovation→lower unemployment & higher wages

#1 at reducing abject poverty