Econ Chapters 1 & 2 Test

Trade-off

sacrificing one good/service to purchase another

Production possibilities curve

graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time

Entrepreneurship

ability of risk-taking individuals to develop new products and start new businesses in order to make profits

Economic growth

to grow and expand the economy

Private property

whatever is owned by individuals rather than by government

Market economy

system in which individuals own the factors of production and make economic decisions through free interaction while looking out for their own and their family’s best interests

Market

freely chosen activity between buyers and sellers of goods and services

Economic model

a theory/simplified representation that helps explain and predict economic behavior

Scarcity

the condition of not being able to have all of the goods and services one wants because wants exceed what can be made from all available resources at any given time

Productivity

the amount of output (goods and services) that results from a given level of inputs (land, labor, capital, entrepreneurship)

Services

actions that can satisfy people’s wants and needs

Laissez-faire

economic system in which the government minimizes its interference with the economy

Command economy

system in which the government controls the factors of production and makes all decisions about their use

Standard of living

government sets safety standards based on economy growth

Profit

money left after all the costs of production; wages, rents, interest, taxes

Profit incentive

when a person invests time, know-how, money, and other capital resources in a business, that investment is made with the idea of making a profit

Traditional economy

system in which economic decisions are based on customs and beliefs that have been handed down from generation to generation

Mixed economy

system combining characteristics of more than one type of economy

Equity

economic equity to exhibit fairness; protected by laws

Adam Smith; Invisible Hand

describes capitalism; an economic system in which private individuals own the factors of production; typically laissez-faire

Factors of production

resources of land, labor, capital, and entrepreneurship used to produce goods and services

Labor

human effort directed toward producing goods and services

Capital

previously manufactured goods used to make other goods and services

Goods

tangible objects that can satisfy people’s wants and needs

Economics

the study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants