Unit 2 economic

Economics

the study of how individuals and societies satisfy their unlimited wants with limited resources.

Scarcity

Deciding what to pay for with limited resources. Unlimited wants and limited resources.

three economic questions that societies face because of scarcity 

What to produce, how to produce, and for whom to produce

Why is scarcity a universal problem?

There is not enough of a product for everyone to acquire. 

The value of a good or service

depends on its scarcity and utility.

Describe the four factors of production and their uses

Land, Labor, Capital, and Entrepreneurship

Trade offs

Are all available alternatives

Opportunity costs

The next best alternative we give up.

consumer good

A good that is only meant to be bought once

durable good

Goods that are meant to last a long while. Contain both consumer and capital goods.

nondurable good

Good that does not last a long amount of time.

The value of a good or service depends on its

scarcity and utility

value

How much something costs and how much you care for it.

paradox of value

Defining value depends on the circumstances of what you need and its opportunity cost.

utility

How well something satisfies someone's wants and needs.

Wealth

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

production possibilities curve/frontier

The production possibilities frontier shows the different combinations of two products that can be produced if all resources are fully employed.

On line - maximum combinations of output that are possible if all resources are fully employed.

Out side of graph - cannot reach it’s full production potential

An economic system

An organized way of providing for the wants and needs of their people.

Three types of economic system:

traditional, command and market

Traditional Economy

Their economic system stems from tradition or what their elders want. Also more based on what you need rather than what you want.

Command Economy

Government decides financial decisions like where the build certain homes and how to build them. Citizens also have little control over their lives here as well. As the government will make people have jobs to fit the government’s needs.

Market Economy

People make decisions in their own best interests. Similar to Capitalism, but focuses on good and services being exchanged.

Market

An arrangement that allows buyers and sellers to exchange goods and services with each other.

Capitalism

An economic system where private citizens own the factors of production.

Mixed Economy

Combination of Traditional, Command and Market economies.

Socialism

Mixed economic and political system in which the government owns and controls some, but not all, of the basic productive resources. Government provides needs to the people like education and health care.

Communism

System where all property is collectively owned. Everyone should have access to needs in this system, but in practice it leads to the government having more economic power.

Economic Freedom

The freedom to decide your job and to make economic decisions.

Economic Security

Protection from tragedies that can affect citizens money that our out of their control such as layoffs and illnesses

Economic Equity

Promotes equality in spending and advertising

Barter

Exchange resources, goods, or services for other resources, goods or services.

Law of Demand

suggests when prices increase, quantity demanded decreases; when prices decrease, quantity demanded increases.

The demand curve summarizes

the relationship between quantity demanded and price. The curve slopes downwards.

Quantity Demanded

is the amount of a good or service consumers are willing and able to buy at different prices during a given period of time.

Determinants of demand

Income, population, tastes, related goods, and expectations.

Change in quantity demanded

reflects movement along a fixed demand curve

Change in demand

reflects a shift of the entire demand curve

Complements

Products that increase in value when the demand for relative products increases. 

Law of supply

When prices are low, quantity supply is low. When prices are high, the quantity supply is high.

Supply determinants

Sellers (a.k.a number of sellers), Productivity, Regulations by government, Input prices , Technology, Expectations (SPRITE)

Equilibrium price

the quanity of demand equals the quanity of supply

Market Surplus (excess supply)

Quantity Demanded less than Quantity Supplied

Market Shortage (excess demand)

Quantity Demanded greater than Quantity Supplied

Individual consumer surplus

is equal to _Maximum of what a person is willing to pay_minus the ___actual payment____.

Producer surplus

Market price (price sold for) minus(-) the price producer are willing to sell for

Any voluntary transaction will always generate both consumer and producer surplus.

False, when selling at market level their is no surplus

Consumer Surplus is

Between Demand curve and price line

Producer Surplus is

Between supply curve and price line.