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Lesson 1: It's All Just Common Sense
BYU Independent Study Understanding Economics (ECON 43) Lesson 1
86
Economics
12th Grade
04/07/2011

Additional Economics Flashcards

 


 

Cards

Term

 

 

When do we actively participate in the economy?

Definition

 

When we:

1. Spend money

2. Work

Term

 

 

What do economists do?

Definition

 

Study our behavior in the economy and attempt to determine the outcomes of these decisions, improve the economy and predict future changes.

Term

 

 

What type of a science is economics and what is its goal?

Definition
 
Social science
Goal: Attempts to explain human behavior in the economy
Term

 

 

 

What is the difficulty with economics?

Definition

It is not an exact science.

As a social science, it attempts to explain human behavior. Economists assume people will be rational, value money, and make choices based on preferences. Human behavior is complex, changing and inconsistent so economists have to make the best assumptions possible.

Term

 

 

What categories is economics divided into?

Definition

 

 

1. Microeconomics

2. Macroeconomics

Term

 

 

 

MICROECONOMICS

Definition

 

  • The study of economics on a small scale.
  • Includes studying the behavior of: firms (businesses), households, and industries.
Term

 

 

 

MACROECONOMICS

 

Definition
  • The study of economics on a much larger scale; the study of the entire economy.
  • Includes studying: government economic policies and international trade
Term

 

 

 

ECONOMICS

Definition

 

 

 

The study of how people satisfy seemingly unlimited wants with limited resources

Term

 

 

SCARCITY

Definition

 

1. The fundamental economic problem.

 

2. Lack of resources; we do not have enough resources to satisfy all of our wants.

Term

 

 

 

What are two facts about scarcity?

Definition

 

1. It is a constant; we can never get rid of it.

 

2. Scarcity is not poverty-it is just as much a problem for the rich as it is for the poor.

Term

 

 

 

What does scarcity force us to do?

 

Definition

 

 

Scarcity forces us to choose between two alternatives. We cannot have everything, so we make choices and trade-offs.

Term


What do economists assume people will do with respect to needs and wants?

Definition

 

 

Assume people will buy what they need first, and what they want second.

Term

 

 

 

Need

Definition
  •  Anything required in order to function in society.
  • Examples: food, clothing, shelter, water, transportation
Term

 

 

 

Want

 

 

Definition
  • The way we satisfy our needs
  • Examples:
  1. We need food, but want pizza.
  2. We need transportation, but want a Ferrari.
  3. We need pants, but want Lucky jeans.
Term

 

 

 

Trade-off

Definition

 

 

The exchange of one thing for another; we are trading the item we do not choose for the item we do choose.

Term

 

 

 

Economic analysis

 

 

Definition

 

 

 

An illustration of trade-offs and choices.

Term

 

 

 

SCARCITY

Definition
  • The fundamental economic problem. We do not have enough resources to satisfy all of our wants.
  • "Lack of resources"
Term

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1. Economics is the study of the flow of money in societies.

(a) true

(b) false

Definition

(b) false

 

Economics is a lot more than just the study of money. It is the study of how people satisfy seemingly unlimited wants with limited resources.

Term

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2. The fundamental economic problem is that we do not have enough resources to satisfy all of our wants.

(a) true

(b) false

Definition

(a) true

 

The fundamental economic problem is scarcity, which is the gap between unlimited wants and limited resources.

Term

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3. An example of a need is food, while an example of a want is a gourmet sandwich.

(a) true

(b) false

Definition

(a) true

 

Needs are everything we have to have to function in society, while wants are ways of satisfying our needs.

Term

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4. Economics is an exact science.

(a) true

(b) false

Definition

(b) false

 

Economics is a social science that attempts to explain ever-changing human behavior.

Term

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5. In the earlier example about John, John traded a car for dates and video games.

(a) true

(b) false

Definition

(a) true

 

John could have had a car if he would have saved his money rather than spending it on video games and dates. He could not have both a car and video games; therefore, he traded his car for dates and video games.

Term

 

 

 

OPPORTUNITY COST

Definition

 

 

The value of the best forgone alternative (to forgo something is to do without it). It is basically the value of the best item we gave up.

Term
 
 
When are there opportunity costs?
Definition

 

 

For every economic choice we make, there is an opportunity cost.

Term

 

 

How do economists analyze peoples' choices?

Definition

 

Through cost-benefit analysis. 

They ask why people make specific economic choices; come to the conclusion that the benefit must outweigh the cost of the choice.

Term

 

 

COST-BENEFIT ANALYSIS

Definition

 

 

Looking at the costs and benefits of a choice and then deciding if the benefits outweigh the costs.

Term

 

 

When do we use cost-benefit analysis?

Definition

 

Whenever we make a list of the positive and negative effects of a choice.

Term

 

What is the relationship between opportunity cost and cost-benefit analysis?

Definition
Cost-benefit analysis is looking at the costs (negative outcomes) and benefits (positive outcomes) of a choice and deciding if the benefits outweigh the cost. Opportunity cost is the value of the best foregone alternative, or the biggest cost of your choice (main thing you will give up).
Term

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The opportunity cost of buying a candy bar for one dollar rather than a bag of chips for one dollar is the bag of chips.


(a) true

(b) false

Definition

(a) true

 

The opportunity cost is the forgone alternative. We bought the candy bar and we did not get the chips. The chips are the foregone alternative.

Term

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You are invited to a party on Thursday night. You have a test in economics on Friday. You make a list of all of the positives and negatives of studying and all of the positives and negatives of going to the party. You decide to go to the party.


You were practicing cost-benefit analysis to make an economic decision.
(a) true

(b) false 

Definition

(a) true

Cost-benefit analysis is weighing all of the costs (negative outcomes) and benefits (positive outcomes) of a choice, and then making a decision. It doesn't imply that you made the correct choice, just that you analyzed the potential benefits and harm of making the choice and the proceeded according to your evaluation of the outcomes.

Term

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You are invited to a party on Thursday night. You have a test in economics on Friday. You make a list of all of the positives and negatives of studying and all of the positives and negatives of going to the party. You decide to go to the party.


Going to the party has economic implications.
(a) true

(b) false 

 

Definition

(a) true

Because there was a choice (studying or partying) with limited resources (time), an economic decision had to be made. And while you might not have considered the monetary benefits or consequences involved in this cost-benefit analysis, they are real. This decision can potentially affect you in many ways: gas to go to the party and money to purchase food or other party amenities cost you money. If you fail the test, you might have to retake the course and that can cost you money. On the other hand, if you go to the party and meet a potential employer and succeed in impressing him or her with your wit and skill, you might gain a job through attending the party. Economics play s a role in many areas of your life.

Term

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You are invited to a party on Thursday night. You have a test in economics on Friday. You make a list of all of the positives and negatives of studying and all of the positives and negatives of going to the party. You decide to go to the party.


The opportunity cost of going to the party was studying for the economics test.

(a) true

(b) false

 

Definition

(a) true

 

Since we went to the party, we did not have time to study. We gave up studying in order to go to the party. The foregone alternative is studying.

Term

 

 

TINSTAAFL

Definition

 

"There is no such thing as a free lunch."

Means that from an economic point of view, virtually nothing is free. Goods, services, and resources are all scarce-meaning all things in the world have a finite, or limited, supply. Even if something is free to you, someone, somewhere, sometime has to pay for it.

Term

 

 

Goods

Definition

 

 

Physical items such as food and clothing

Term

 

 

Services

Definition

 

 

 

Labor such as accounting or cleaning

Term

 

 

Resources

Definition

 

Time and money etc.

Term

 

 

 


Economic good

Definition

Goods that can be bought or sold; scarce. They are not equally available to all. 

 

Examples: cars, food, cell phones

Term

 

 

What is true of economic goods, services, and resources?

Definition

 

 

They are paid for at some point.

Term

 

 

Free goods

Definition

Goods that are not bought or sold, are not scarce, and have no opportunity cost.

 

Examples: air, waste products such as discarded packaging

Term

 

 

Are all products offered at a zero price considered free goods?

Definition

No, if it has an opportunity cost and/or is considered scarce it is not a free good.

 

 For example if there is a buy one get one free sale on T-shirts, the free shirt is not considered a free good, but an economic good.

Term

 

 

VALUE

Definition

 

How much something is worth (price), how much people are willing to pay for something.

Term

 

What determines the value of an economic good or service in a market economy?

Definition

 

 

Utility and scarcity.

Term

 

 

UTILITY

Definition

The usefulness of a good. It measures the satisfaction a person gets from consuming an economic good.

 

One of the factors that determines the value of a good or service.

Term

 

 

SCARCITY

(in determining the value of goods)

 

Definition


How much of that good is available.


One of the factors that determines the value of an economic good or service.

Term

 

 

What is the importance of utility?

Definition

How useful something is will help determine its value to you.


Examples:

1. We all find food useful; therefore, it has a high utility

2. Most people don't find garbage useful; therefore, it is has a low utility

Term

 

Do all goods and services have the same value (and utility) for every person in the economy?

Definition

No. Different goods and services are useful to different people; therefore, what is valuable to one person might not be valuable to another person.

 

Example: Antiques Roadshow

Term

 

 

What can affect the value (and utility) of a particular good?

Definition

Cultural influences-

Societies place value on items based on their usefulness. Different cultures value different items.

Geographic factors (such as weather)

Example: an umbrella has a higher utility in a place where it rains a lot versus a place that gets little rain

Marginal benefit

 

Term

 

 

MARGINAL BENEFIT

Definition

The benefit a person receives from consuming one more unit of a good or service.

 

It affects the individual utility of a good and therefore the value an individual person places on a good or service.

Term

 

 

What is true about marginal benefit?

Definition

 

The benefits a person receives from consuming the first unit of a good or service is typically much larger than the benefit the same person receives from consuming an additional unit or units of the good or service.

Term

 

 

WEALTH

Definition

 

 

The value of all of the goods, services, and resources a society or individual owns.

Term

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There is no such thing as a free lunch.

 

 

(a) true

(b) false

 

Definition

(a) true

 

From an economics perspective, no economic product is free. Someone pays for it.

Term

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The pen has a high utility for a writer when the ink is dry and it does not write.
(a) true

(b) false 

Definition

(b) false

 

Utility means usefulness. If a pen has a high utility, it would be very useful. A pen that does not work would have a low utility.

Term

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Diamonds have a high value because they have a high utility and are scarce.

(a) true

(b) false

 

Definition

(a) true

 

Value is determined by utility and scarcity.

Term

 

 

FACTORS OF PRODUCTION

Definition

 

Economic resources, or scarce inputs that are required to produce a good or service in order to satisfy human wants.

Term

 

 

What are the factors of production?

Definition

 

(1) Land

(2) Labor

(3) Capital

(4) Entrepreneurs

Term

 

 

LAND

Definition

More than just land; includes all natural resources necessary to produce a good or service.


Examples: timber, water, minerals

Term

 

 

LABOR

Definition

 

 

All the people and the work they do in order to produce good and services.

Term



CAPITAL

Definition

(1) Man-made goods that are required for the production process; anything that is bought in order to produce goods and services.

Examples: machines, buildings, tools

(2) The money needed to buy these things.

(3) Human capital 

Term

 

 

Human capital

Definition

 

The training and development of employees. Employers invest in their employees hoping that training and knowledge will make their employees more productive.

Term

 

 

 

ENTREPRENEUR

Definition

 

Persons who take risks and combine the other three factors of production and create a business. They come up with new, innovative ideas in order to make a profit.

Term

 

 

What are entrepreneurs considered?

Definition

 

 

 

The driving force of the economy.

Term

 

 

What drives the economy?

Definition

 

 

People want to make money, so they are motivated to work, develop new ideas, and open new businesses.

Term

 

 

Incentives

Definition

 

 

Anticipated positive outcomes from a decision or set of decisions.

Term

 

 

What are the types of economic incentives?

Definition

 

 

Monetary and non-monetary incentives

Term

 

 

MONETARY INCENTIVES

Definition

Money incentives

 

Examples: 

(1) A paycheck

(2) A bonus

(3) A raise in pay

Term

 

 

NON-MONETARY INCENTIVES

Definition

Incentives that do not have anything to do with money

 

Examples:

(1) Fame

(2) Personal Fulfillment

(3) Achieving goals

Term

 

 

What motivates entrepreneurs to come up with new businesses and new ideas?

Definition

Both types of economic incentives:

Main motivator is profit; seek money and recognition.

 

Also motivated by non-monetary incentives such as fame and personal fulfillment.

Term

 

 

 

PRODUCER

Definition

 

 

 

The maker of goods and services.

Term

 

 

 

CONSUMER

Definition

 

 

 

The buyer of goods and services.

Term

 

 

What are the four sectors of the economy where exchanges take place?

Definition

 

(1) Consumers

(2) Businesses

(3) Government

(4) Foreign

Term

 

 

Consumers

Definition

 

Buy goods from businesses and the government. It is said that they are in charge of the economy.

Term

 

 

Consumer sovereignty

Definition

 

The power of the consumer in the economy. The idea that wants originate within the individual, and businesses simply produce what the consumers want.

Term

 

 

Businesses

Definition

 

Produce goods and services for consumers. They offer goods and services for sale. Basically produce what consumers want to buy.

Term

 

 

 

Government

Definition


Plays a large role in the economy of a nation and in the economy of the world. May control the economy but in a capitalistic society seeks to help the economy run smoothly.

Term

 

 

Foreign 

Definition

(imports and exports)

 

Many businesses in an economy produce goods strictly for foreign markets.

Term

 

 

What is true of the sectors of the economy?

Definition

 

 

All of the goods within an economy are produced and consumed by one of the four sectors.

Term

 

 

 

What is true about each sector?

Definition

 

Many organizations exist that have different rules and constraints; rules and constraints affect other organizations through exchanges and other transactions.

Term

 

 

MARKET

Definition

An exchange between a buyer and a seller; can be local, regional, national, or international.

 

Examples:

(1) Me selling you an apple (local market)

(2) US selling planes to Great Britain (international market)

Term

 

 

PRODUCT MARKET

Definition


A business exchanging finished products for consumers' money. The consumer buys the product for the purpose of consumption. The final destination of the good is the consumer.

 

Term

 

 

FACTOR MARKET

Definition

 

(Input market) The inputs into the production process (land, labor, capital, entrepreneurship) are bought and sold in factor markets in order to produce another good.

Term

 

 

Circular flow of economic activity

Definition

[image]

 

Shows the flow of the factors of production in the economy.

Term

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An example of a monetary incentive is accomplishing a goal.

(a) true

(b) false

 

Definition

(b) false

 

A monetary incentive is a money incentive; accomplishing a goal is an example of a non-monetary incentive.

Term

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An example of capital is a computer that a business uses for everyday transactions.
(a) true

(b) false 

Definition

(a) true

 

Capital is anything a business invests in so the business can operate. A computer is an example of capital.

Term

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 A baker purchases flour so he can make goods and sell them in his bakery. The baker purchased the flour in a product market.

(a) true

(b) false

 

Definition

(b) false

 

Final purchases for consumption are made in product markets. A baker is purchasing flour for his business. Flour then becomes a factor of production because it is being used to produce a final good. Factors of production are bought and sold in factor markets.

Term

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A businessman purchases flowers for his wife on his way home from work. The man purchased the flowers in a product market.
(a) true

(b) false 

Definition

(a) true

 

The man is going to give the flowers to his wife. The flowers are a finished product, so they are bought and sold in a product market. 

Term

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Bill Gates is an example of an entrepreneur because he developed a company and started a business.

(a) true
(b) false

 

 

Definition

(a) true

 

The definition of an entrepreneur is a risk-taker. Developing a business and creating new technology is all part of being an entrepreneur.

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