The economic way of thinking Flashcards
What are the 2 basic desires?
Needs and wants
Desires that can be satisfied by consuming a good or service
Wants
Things such as food, clothing, and shelter that are necessary for survival
Needs
The situation that exists when there are not enough resources to meet human wants
Scarcity
The study of how people choose to use scarce resources to satisfy their wants
Economics
____________ is central to the use of scarce resources
Choice
Physical objects that can be purchased such as food, clothing, or furniture
Goods
Work that one person performs for another for payment
Sevices
Person who buys goods or services for personal use
Consumer
Person who makes goods or produces services
Producer
What are the three economic questions?
What to produce?
How to produce them?
Who to produce them for?
What are the four factors of production?
Land
Labor
Capital
Entrepreneurship
All the natural resources found on or underground that can be used to produce goods and services
Land
All the human time, effort, and talent that go into the making of products
Labor
All the resources made and used by people to produce and distribute goods and services; All the producer’s physical resources
Capital
What are the resources necessary to produce goods and services?
Factors of production
The combination of vision, skill, ingenuity, and willingness to take risks that is needed to create and run new businesses
Entrepreneurship
The knowledge and skills gained through experience
Human capital
Methods used to encourage people to take certain actions
Incentives
The benefit or satisfaction received from using a good or service
Utility
To make decisions according to the best combination of costs and benefits
Economization
What factors shape economic choices?
Incentives, Utility
Do not require all or nothing choices, rather, they involve giving up some or one thing to gain more of another
Trade-offs
The value of the next-best alternative or what you give up by choosing one over another
Opportunity cost
The practice of examining costs and the expected benefits of a choice as an aid to decision making
Cost-benefit analysis
Shows what you get and what you give up when you make choices
Decision-making grid
The additional cost of using one more unit of product
Marginal cost
The additional satisfaction from using one more unit of a product
Marginal Benefit
A graph used by economists to show the impact of scarcity on an economy
Production Possibilities Frontier
PPF is based on what assumptions?
Resources are fixed
All Resources are fully employed
Only two things can be produced
Technology is fixed
Latin phrase used in economics to mean all other things being held equal or constant
Ceteris paribus
The condition in which economic resources are being used to produce the maximum amount of goods and services
Efficiency
The condition in which economic resources are not being used to their full potential
Underutilization
States that as production switches from one product to another, increasing amounts of resources are needed to increase the production of the second product
Law of Increasing Opportunity Costs
