Chapter 1 Flashcards
what is economics?
study of the use of scarce resources to satisfy unlimited human wants
what are some issues that economics might address?
- productivity growth
- population aging
- climate change
- global financial stability
- rising government debt
- globalization
define factors of production
resources used to produce goods and services; frequently divided into the basic categories of land, labour and capital
define goods
tangible commodities such as cars or shoes
define services
intangible commodities such as haircuts or medical care
define production
the act of making goods or services
define consumption
the act of using goods or services to satisfy wants
scarcity implies…
that choices must be made, and choices implies the existence of costs
define opportunity cost
the cost of using resources for a certain purpose, measured by the benefit given up by not using them in their best alternative use
define a production possibility boundary
a curve showing which alternative combinations of commodities can just be attained if all available resources are used efficiently. it is the boundary between attainable and unattainable output combinations
what concepts are illustrated by a production possibilities boundary?
scarcity, choice, and opportunity cost
what are the four key economic problems?
- what is produced and how
- what is consumed and by whom
- why are resources sometimes idle?
- is productive capacity growing?
an economy based on free-market transactions is ___________
self-organizing
define efficiency
producing as much goods/services as the people want with the least possible amount of resources
what are the three main groups of decision-makers?
consumers, producers, government
define utility
total satisfaction received from consuming a good or service
individuals try to maximize _____ while producers try to maximize _____
utility; profits
define marginal cost
cost of producing one more unit of a good
define marginal benefit
maximum that a consumer’s willing to pay for an additional good/service
define specialization of labour
the specialization of individual workers in the production of particular goods or services
define division of labour
breaking up of a production process into a series of specialized tasks, each done by a different worker
define a barter system
when goods and services are traded directly for other goods and services
why is money beneficial?
it eliminates the complications of a barter system by separating the transactions involved in the exchange of products
what is globalization?
increased importance of international trade
define a traditional economy
an economy in which behavior is based mostly on tradition
define a command economy
an economy in which most economic decisions are made by a central planning authority
define a free-market economy
an economy in which most economic decisions are made by private households
define a mixed economy
an economy in which some economic decisions are made by firms and households and some by the government
in practice, every economy is a _____ economy
mixed; in the sense that it combines significant elements of all 3 systems in determining economic behaviour
what are two key institutions in a mixed economy?
private property and freedom of contract
what does a government do in a mixed economy?
creates laws of ownership and contract and then provides the institutions, such as police and courts to enforce these laws
