The Economic Problem: Scarcity And Choice Flashcards
Things that are themselves produced and that are then used in the production of other goods and services
Capital
Factors of production
Production
Inputs
Outputs
Production
Process that transforms resources into useful goods and services
Provided by nature or previous generations
Inputs
Output
Usable products
Constrained optimization
Constrained choice
Scarcity
Introduced by David Ricardo, a major 19th century British Economist
Theory of Comparative Advantage
Specialization and free trade will benefit all trading parties
Theory of Comparative Advantage
Can produce product user fewer resources
Absolute advantage
Comparative advantage
Can produce product at a lower opportunity cost
Anything that has already been produced that will be used to produce other valuable goods or services
Capital goods
Goods produced for present consumption
Consumer Goods
Goods produced for present consumption
Consumer Goods
The process of using resources to produce new capital
Investment
Graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently
The Production Possibility Frontier (PPF)
One of the most important concepts incorporated in the ppf is _______
Opportunity Cost
During economic downturns or recessions, industrial plants run at less than their total capacity
Unemployment
Waste and mismanagement are the results of a firm operating below its potential
Inefficiency
Sometimes results from mismanagement of the economy instead of mismanagement of individual private firms
Inefficiency
What are the three basic questions facing all economic systems?
What gets produced?
How is it produced?
Who gets it?
An economy in which a central government either directly or indirectly sets output targets, incomes, and prices
Command Economy/Planned Economy
An economy in which individual people and firms pursue their pwn self interest without any central direction or regulation
Laissez-Faire or Free Market
Opposed government intervention
Free market
Institution through which buyers and sellers interact and engage in exchange
Market
The behavior of buyers and sellers in a _____ economy determines what gets produced, how it is produced, and who gets it
Laissez-Faire
Consumers ultimately dictate what will be produced or not produced
Consumers sovereignty
The freedom of individuals to start and operate private businesses in search or profits
Free Enterprise
