Unit 2 Econ

How does specialization benefit the economy?

It increases total output and encourages trade between producers

What is voluntary exchange?

A trade where both buyers and sellers willingly agree and benefit

Why is voluntary exchange important?

It drives efficiency, innovation, and mutual benefit in markets

What is specialization?

Focusing on producing one or few goods efficiently to increase productivity

What is shown in the circular flow model?

The flow of goods, services, and money between households, businesses, and government

In the circular flow, what do household provide?

Labor and resources in exchange for income

In the circular flow, what do businesses provide?

Goods and services in exchange for revenue

What is the law of demand?

As price decreases, quantity demanded increases

What is the law of supply?

As price increases, quantity supplied increases

What is equilibrium price?

The price at which quantity demanded equals quantity supplied

What happens when there is a shortage?

Prices rise until equilibrium is restored

What happens when there is a surplus?

Prices fall until equilibrium is restored

What are prices in a market economy?

Signals that guide producers and consumers

Define productivity

The amount of goods and services produced per worker or per input

What is the formula for productivity?

Productivity = Output/Input

How does higher productivity affect standard of living?

It increases incomes and access to goods and services

Define standard of living

The level of wealth, comfort, and material goods available to people

What investments, increase productivity?

Technology, education, health, and capital goods

What is human capital?

The skills, knowledge, and health that make workers productive

How does technology affect productivity?

It allows workers to produce more in less time

What is physical capital?

Tools, machines, and buildings used to produce goods

What is capital investment?

Spending on new tools or technology to increase output

What does GDP per capita measure?

Average output or income per person in a country

How does education affect productivity?

It increases worker efficiency and innovation

Give an example of Alabama improving productivity

AIDT programs and community college programs train skilled workers for manufacturing jobs

Why does government get involved in the economy?

To fix market failures, promote fairness, and stabilize growth

How does government promote competition?

By enforcing antitrust laws to prevent monopolies

How does government protect property rights?

Through courts, law enforcement, and due process protections

How does government promote equity?

Using progressive taxes, welfare, and equal opportunity laws

What are public goods?

Goods available to everyone, like national defense or public parks

What is the free rider problem?

When people benefit from a public good without paying for it

What is a externality?

A side effect of production or consumption that affects others

Give a negative externality example

Pollution from a factory harming nearby residents

Give a positive externality example

Education improving society’s productivity and innovation

How does government fix negative externalities?

Using taxes, fines, or regulation to discourage harmful behavior

How does government encourage positive externalities?

By providing subsidies or public funding

What is regulation?

Rules set by government to protect consumers, workers, and the environment

What is deregulation?

Reducing government rules to increase business efficiency and competitionW

What are fiscal policies?

Taxes & spending

What are monetary policies?

Interest rates by the Federal Reserve

What is the government’s main economic goal?

A fair, efficient, and stable economy for all citizens