Chapter 1 Foundation of Economics Flashcards
Factors of Production (Resources)
the inputs used to produce goods and services wanted by people, consisted of land, labor, capital, entrepreneur
Scarcity
the situation in which available resources, or factors of production, are finite, whereas wants are infinite. In this state, There are not enough
resources to produce everything that human beingsneed and want
Choice
essential since it is not possible for all human needs and wants to be satisfied
Efficiency
making the best possible use of scarce resources
Equity
being fair or just
Economic well-being
levels of prosperity, economic satisfaction and standards of living among the members of a society
Sustainability
the ability of the present generation to satisfy its needs by the use of resources, and especially non-renewable resources, without limiting future generations’ ability to satisfy their own needs
Interdependence
economic decision-makers interact with and depend on each other
Intervention
government becomes involved with the workings of markets
Economics
the study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited human needs and wants
Resource Allocation
assigning available resources, or factors of production, to specific uses chosen among many possible alternatives, and involves answering the what to produce and how to produce questions
Reallocation
a decision to change the amounts of goods produced
Overallocation/Underallocation
Too many/few socially desirable goods and services being produced
Distribution of Income
concerned with how much output different individuals or different groups in the population receive
Redistribution of Income
distribution of income or output changes so that different social groups now receive more, or less, income and output than previously
Land
all natural resources, including all agricultural and non-agricultural land, as well as everything that is under or above the land, such as minerals, oil reserves, underground water, forests, rivers and lakes
Labor
includes the physical and mental effort that people contribute to the production of goods and services. The efforts of a teacher, a construction worker, an economist, a doctor, a taxi driver or a plumber all contribute to producing goods and services
Capital (Physical Capital)
a manmade factor of production (it is itself produced)used to produce goods and services. Examples of physical capital include machinery, tools, factories, buildings, road systems, airports, harbours, electricity generators and telephone supply lines
Entrepreneur
a special human skill possessed by some people, involving the ability to innovate by developing new ways of doing things, to take business risks and to seek new opportunities for opening and running a business
Physical Capital
one of the four factors of production consisting of man-made inputs that provide a stream of future benefits in the form of the ability to produce greater quantities of output
Human Capital
the skills, abilities and knowledge acquired by people, as well as good levels of health, all of which make them more productive.
Natural Capital
includes everything that is included in land, plus additional natural resources that occur naturally in the environment such as the air, biodiversity, soil quality, the ozone layer, and the global climate
Opportunity Cost
the value of the next best alternative that must be sacrificed to obtain something else
Production Possibility Curve (PPC)
represents all combinations of the maximum amounts of two goods that can be produced by an economy, given its resources and technology, when there is full employment of resources and productive effi ciency
Productive Efficiency
output is produced by use of the fewest possible resources; alternatively, we can say that output is produced at the lowest possible cost
Actual Output
the quantity of output actually produced, is always at a point inside the PPC, because in the real world all economies have some unemployment of resources and some productive inefficiency
Ceteris Paribus
a Latin expression that means ‘other things equal’
Rational Economic Decision Making
individuals are assumed to act in their best self-interest, trying to maximize (make as large as possible) the satisfaction they expect to receive from their economic decisions
Positive Statements
about something that is, was or will be. Positive statements may be true or they may be false
Normative Statements
are about what ought to be. These are subjective statements about what should happen
Economic Growth
the quantity of output produced increasing over time; if it decreases, negative economic growth
Economic Development
raising the standard of living and well-being of people
