Economics Vocab Quiz 1 Flashcards
Principle 1: People face tradeoffs
To get one thing, we usually have to give up another
Ex: guns vs. butter
Efficiency
society gets the most that it can from its scarce resources
“How big is the pie”
Equity
The benefits of resources are distributed fairly among the members of society
“How the pie should be cut”
Principle 2: The cost of something is what you give up to get it
Decisions require comparing costs and benefits of alternatives
Cost
What you give up to get something
Oppurtunity cost
What you give up to obtain an item
Singular
Marginal changes
Small, incremental adjustments to an existing plan of action
Market economy
An economy that allocates resources through the decentralized decision of many firms and households as they interact in markets for goods and services
Households
decide what to buy and who to work for
Firms
decide who to hire and what to produce
Invisible hand
Adam Smith’s idea that when economies are left alone prices tend to guide trends to maximize welfare
Market failure
Occurs when the market fails to allocate resources efficiently
Externality
Impact of one person or firm’s actions on the well-being of a bystander
Market power
Ability of a single person or firm to unduly influence market prices
Productivity
Amount of goods and services produced from each hour of a worker’s time
Inflation
Increase in the overall level of prices in the economy
Phillips Curve
Illustrates the tradeoff between inflation and unemployment
Need
basic requirement for survival
Ex: food, clothing, shelter
Want
Means of expressing a need
Free products
Sunshine or air
Plentiful and no one could own them and no price could be placed on them
Economic products
Goods and services that are useful, relatively scarce and transferable to other
Goods
Tangible commodity
Consumer good
Intended for final use by individuals
Capital good
Manufactured good used to produce other goods and services
Durable good
Any good that lasts longer than 3 years
Nondurable good
an item that lasts for less than 3 years
Ex: food, clothing, paper
Service
Work that is performed for someone
Nontangible
Ex: haircuts, home repairs
Consumers
people who use goods and services to satisfy wants and needs
Consumption
the process of using up goods and services in order to satisfy wants and needs
Conspicuous consumption
the use of a good or service to impress others
Ex: expensive cars, jewerly, shoes
Value
refers to something that has a worth that can be expressed in dollars
Utlity
The capacity of something to be useful to someone
Varies from person to person, no set value
Wealth
the sum of those economic products that are tangible, scarce, useful, and transferable from one person to another
Marginal utlity
is the additional satisfaction a consumer gains from consuming one more unit of a good or service
Production
process of creating goods and services
Productivity
the efficient use of productive resources
Specilization of labor
productive imputs do whatever task that are able to do best
division of labor
Market
location or other mechanism that allows buyers and sellers to deal readily in a certain economic product
Circular flow
individuals earn their incomes in factor markets
Factor markets
the markets where productive resources are bought and sold
Scarcity
the condition that arises because society does not have enough resources to produce all the things people would like to have
Factors of Production (inputs)
Land
Capital
Labor
Land
refers to the “gifts of nature”
Natural resources that are not created by human effort
Capital
the tools, equipment, and factories used in the production of goods and services
Labor
people with all their efforts, abilities, and skills
Does not include entrepreneurs
