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| The 3 Basic economic questions |
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Definition
a. What goods should be produced?
b. How should the goods be produced?
c. Who should receive the goods/services produced? |
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| The study of how people and societies use limited resources to satisfy their unlimited wants. The study of scarcity and choice |
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Tangible items of value, things we can see or touch
Ex: scissors, medicines, textbooks |
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Definition
Intangible things that have value, cannot be seen nor touched
Ex: haircuts, medical care, education |
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| The act of buying final goods and services |
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Term
| Four factors of production |
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Definition
1. Human Resources - people whose efforts and skills go into the production of goods and services.
Productivity - the amount each worker produces in a specified time
2. Natural Resources - materials obtained from the land, sea, and air
Standard of Living - quantity and quality of goods and services that are available to an individual or society
Capital Resources - the machines, tools, and buildings that we use to produces goods and services
Capital Formation - the production of capital goods
Entrepreneurship - entrepreneurs create new enterprises or improve existing ones |
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Definition
| Takes place when one thing is given up in order to obtain something else |
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| The trade-off of the value of one good service for the value of another |
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Definition
| The usefulness of adding one more item to the production of a product or service |
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Term
| Traditional Economic System |
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Definition
| Decisions about WHAT to produce; How to produce; and to WHOM are a matter of custom and tradition; career is usually determined at birth |
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Definition
| WHAT, HOW, and WHO are decided by a central authority, usually the government |
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| WHAT, HOW, and WHO are made by individuals and business (like we have in the United States) |
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Term
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Definition
| The study of the effects of economic forces on individual parts of the economy, such as business firms, households, and workers (businesses) |
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Definition
| The study of the impact of changes on the economy as a whole (the big picture) |
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| All things being equal; enables observers to focus on one or two variables while, at the same time, recognizing that other variables exist |
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Money is only worth what people are willing to pay for it
Ex: a woodcutter who wants shoes does not have to find a shoemaker who wants wood |
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| Ex: a book that costs $12 = 20 candy bars at $0.60 each |
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| Money can be saved for future use |
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Term
| Principles of US Economic System |
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Definition
1. Free Enterprise - people can enter any business they choose
2. Private Property - right to won and use property
3. Profit Motive - the willingness of entrepreneurs to risk financial loss by organizing and launching a business enterprise; the desire of business owners to earn the greatest profits
Consumer Sovereignty - the need to give customers what they want; the consumers have to choose which goods and services to buy
Competition - rivalry between sellers; the rivalry for goods and services among buyers and sellers |
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Definition
| A situation in which each nation, region, or firm produces a narrow range of products or services |
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| The principle that a nation should specialize in the production of those goods and services in which it is most efficient, and trade its surplus goods and services for the things it needs |
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| Circular Flow of Economic Activity |
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Definition
| The stream of funds that is constantly passing back and forth between the public and the businesses of the country |
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Definition
Prices affect WHAT goods and services will be produced
Prices affect HOW goods and services are produced
Prices affect WHO will receive goods and services |
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Term
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Definition
2 revolutions of 1776: American Revolution and Capitalism
Published "The Wealth of Nations"
Thinks that nations can produce more by Laissez-faire (government stays hands off of business) |
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Term
| Advantages of the Market System |
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Definition
1. The most efficient of all economic systems
2. More sensitive to consumer demand than other economic systems
3. Provides the most freedom for individuals and business firms, and least direction and control by government
4. Rewards those in accordance with the value the economy places on their contribution |
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Term
| Disadvantages of the Market System |
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Definition
1. Does not prove all of the goods and services needed by society
2. Does not adequately provide for the needs of all the people
3. Likely to experience periods of expansion and contraction of business activity
4. The market system cannot account for many harmful costs of doing business |
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Term
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Definition
| Economists base their ideas off the fact that people are rational, however, some people are not and that is why they have choice and different things are given different values |
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