Unit 1: Chapters 1 - 3(Scarcity, Intro to Economic Systems, and The American Free Enterprise System)

Vocabulary

Needs

Essential requirements for survival, such as food, water, and shelter.

Wants

expressed as a need, not necessarily for survival(something we desire)

ex. entertainment, luxuries, and non-essential goods.

Scarcity

The basic economic problem that drives people to make choices (Limited resources to satisfy unlimited wants and needs).

Supply & Demand

The relationship between the quantity of a good or service that producers are willing to sell and the quantity that consumers are willing to buy at various prices.

Economics

The study of how individuals and societies make choices about allocating scarce resources to satisfy their wants and needs.

Goods

Physical objects that can be purchased

Services

Something someone does for another person

Consumer

Buys goods or services for personal use

Producer

Makes goods or provides services

3 fundamental questions of Economics

What to produce? How will it be produced? For whom will it be produced?

Factors of Production

Land, Labor, Capital, Entrepreneurship

Incentives

Benefits offered to people(encourage them) to act in certain ways

Utility

Benefit or satisfaction gained from the use of goods or services

Economize

Make choices/decisions according to what you believe is the best combination of costs & benefits

Trade-off

Giving up something to gain more of another

Opportunity cost

Value off something that is given up to get something else that is wanted

Cost-Benefit Anaylsis

An appoarch that weighs the benefits of an action against its costs

Marginal Cost

Cost of using one more unit of a good or service

Marginal Benefit

benefit or satisfaction received from using one more unit of a good or service

Economic Models

Simplified representations of complex economic activities, systems, or problems

PPC

Production Possibilities Curve. A graph used to illustrate the impact of scarcity on an economy by showing the maximum number of goods and services that can be produced using limited resources.

Law of Increasing opportunity cost

production switches from 1 product to another, increasing amounts of resources are needed to increase the production of the 2nd product

Statistics

Information in numerical form

Microeconomics

Study of the behavior and decision-making of individual units, such consumers, households, and businesses.

Macroeconomics

Study of the behavior of the economy as a whole and involves topics like inflation, unemployment, aggregate demand, & aggregate supply.

Positive economics

Study of economics as it is

Normative economics

Describing & explaining what economic behavior ought to be, not what it actually is

Economic System

The way society uses resources to satisfy citizens’ wants & needs

Tradition Economy

Economy System where people produce & distribute goods according to customs handed down from generation to generation

Command Economy

Economy System where the government makes all economic choices

Market Economy(Capitalism/Free enterprise)

Economy System where it’s directed by individual choices

Centrally Planned Economy

System where central government officials make all economic decisions

Socialism

Economy System where the government owns some or all the factors of production

Communism

Economy System where government owns all the factors of production with little or no political freedom

Authoritarian

System that requires absolute obedience to authority

Private Property Rights

The rights of individuals & groups to own property

Market

Any place in which people buy and sell goods and services

Laissez Faire

French for ‘leave things alone‘

Capitalism

Economy System this is based on private ownership of the factors of production

Voluntary exchange

A trade in which both traders believe that what they are getting is worth more than what they are giving up

Profit

The money left over after production cost is substracted from the revenue gained by selling that good/service.

Consumer Sovereignty

The idea that consumers hold ultimate control over what is produced because their purchasing choices determine market supply

Specialization

People concentrate their efforts in the activities they do best

Circular Flow Model

Tool that economists use to understand how market economics operate

Product Market

A market where goods & services are sold (where households do their consumering)

Factor Market

A market for the 4 factor of production: lang, labor, capital, entrepreneurship

Mixed Economy

Economy that has elements of traditional, command, & market economics

Nationalize

To change from private ownership to government or public ownership

Privatize

To change from public ownership or government to private ownership

Global Economy

All the economic interactions that cross international boundaries

Free Enterprise System

Another name for Capitalism

Open Opportunity

Ability of everyone to take part in the market by free choice

Legal Equality

Situation where everyone has same economic rights under the law

Free Contract

Situation where people decide which legal agreements to enter into

Profit Motive

Force that encourages people & organizations to improve their material well being from economic activities.

Modified Free Enterprise Economy

Some government involvement in the free enterprise economy

Market Failure

Something the market doesn’t provide(inefficient or unprofitable)

Public Goods

Good and services provided for the general public funded by the government

Free Riders

People who chooses not to pay for a good/service but benefits when provided

Infrastructure

Consists of all goods & services that are necessary for the functioning of society

Externality

Side effect that affects somebody other than the producer or consumer

Positive externality

Creates benefits for people who were not involved in the original economic activity

Negative externality

Imposes cost on people who were not involved in the original economic activity

Subsidy

Financial aid or money given by a government to a person, company, or industry to help lower costs or support a public goal.

Safety Net

Assistance provided by government to avoid severe poverty or financial hardship

Transfer payment

Transfer of income/benefit without exchange in return

Public Transfer Payment

Transfer payment in which the government