Unit 1 Flashcards
Need
Goods that are necessities for survival
Want
Goods that make life more comfortable or enjoyable
Scarcity
The result of limited sources and people’s unlimited needs; the main problem in economics
Trade-offs / Alternatives
Alternatives (choices) that must be given up when one is chosen rather than another
Opportunity Costs
Cost of the next best alternative use of money/time/resources when one choice is made rather than another; value of the thing you give up when you make a choice
Goods
Items (particularly products and services) satisfying people’s needs and wants
(i.e.: anything built/manufactured
(computers, houses, etc.))
Services
Work/labor performed by someone
(i.e.: haircuts, entertainment, teaching, etc.)
Factors of Production: 1) Capital Resources
Human-made stuff used to make something else
(i.e.: tools, equipment, machines)
Factors of Production: 2) Natural Resources/Land
Natural stuff used in making a good/service
(i.e.: Land, water, oil, etc.)
Factors of Production: 3) Human Resources (Labor)
Labor and skills used to make/sell a product
Factors of Production: 4) Entrepreneurs
Someone who does something new, unique, and/or creative with resources
(i.e.: Walt Disney, Bill Gates, etc.)
Market
1) Meeting place (physical and online) for buyers and sellers
2) Where voluntary exchanges take place
3) The sum of all the individual’s choices/purchases
Factor Market
Market for resources
- Where most people work and earn wages
- Where businesses get resources for their products
Product Market
Where goods and services are bought and sold
- Consumers spend money that they earn from their jobs in the factor market
What do choice and scarcity have to do with economics?
- Have to make choices with limited money, time, and resources
- Not all things we want and need in life are unlimited; we only have limited time, money, water, food, etc.
Cost Benefit Analysis
A process of measuring the costs and benefits of a project to weight them against other projects to make a decision
CBA Steps
1) Determine Costs
2) Calculate Benefits
3) Compare Alternatives
4) Report and Plan Action
Benefit-Cost Ratio Formula
(Predicted Value of Expected Benefits / Predicted Value of Expected Costs)
(i.e.: Project 1 -> 80k Cost / 120k Benefit = 1:5 ratio)
What is the discount/interest rate often used for today?
To normally borrow money and adjust future money into present-day value
Annual Interest Formula
A = P x (1 + r)^t
A = Final Amount
P = Initial Amount
R = Interest/Discount Rate
T = Time
Annual Interest Formula Practice:
How much will $100 be worth a year from now at a 5% discount rate?
A = 100 x (1+0.05)^1
A = 105 dollars
Annual Interest Formula Practice:
How much is $100 a year from now worth today at a 5% discount rate?
100 = P x (1 + 0.05)^1
P = 95.24 dollars
Economic Systems: 1) Traditional
A system that relies on customs, history, and time-honored beliefs.
- Tradition impacts production and distribution
- Dependent on agriculture, fishing, hunting, gathering, etc.
- Bartering > money
Economic Systems: 2) Command
A system where production is publicly owned
- A central authority controls economic activity, assigning quantitative production goals and issuing raw materials to productive enterprises (businesses, firms, etc.)
Economic Systems: 3) Market
A system where supply and demand control the production of goods and services
- Economies are based on voluntary exchange and are NOT controlled by a central authority (i.e.: a govt.)
Economic Systems: 4) Mixed
A system combining aspects of capitalism and socialism
- Private property + economic freedom with capital
- Govt. interference involved
Adam Smith
Considered the “Father of Capitalism”
- The Wealth of Nations: “The wealth of nations carry the message of laissez-faire”
What is considered “The Tragedy of the Commons?”
Public property is often overused and abused compared to private property
Laissez-faire
When a central authority, such as the government, does not interfere with economic activity
Demand
The willingness and ability to buy a product or service at a certain price
Law of Demand
When prices go up, quantity demanded goes down, and vice versa
Why is the law of demand usually true?
Increased opportunity costs:
- The more you pay for a product, the more alternatives you give up to buy the product
- (i.e.: A candy bar at $1 has a lower opportunity cost than the same bar at $4)
Utility
Basically satisfaction/happiness
Total Utility
The TOTAL satisfaction obtained from the entire consumption of a product
Marginal Utility
The satisfaction we get from consuming the LAST unit of a product
Law of Diminishing Marginal Utility
At some point, the utility we get from consuming an additional unit will start to DECREASE
What slope does a demand curve usually have?
A negative slope
Rules for Change in the Quantity Demanded
1) A change in price = change in quantity (number) demanded
2) A change in quantity demanded = movement along the demand curve (usual movement)
What does it mean when there’s a shift in the demand curve?
People want to buy DIFFERENT amounts of a product at the SAME prices
6 Factors Shifting the Demand Curve: Substitutes (Price of) - S
Goods that can be used in place of another
- Use of one DECREASES the use of the other
- Substitution
6 Factors Shifting the Demand Curve: Tastes and Preferences - T
Ads, news reports, fashion trends, new products, seasons, influencers, etc.
6 Factors Shifting the Demand Curve: Income - I
Income increases = demand increases (more opportunities to afford and buy goods and services)
Income decreases = demand decreases
6 Factors Shifting the Demand Curve: Price of Compliments - P
Complements = related goods
- Use of one INCREASES the use of the other
6 Factors Shifting the Demand Curve: Expectations - E
Buyers’ beliefs about the future of a good
(i.e.: Weather forecasters announce rain snow, consumers stock up on umbrellas)
6 Factors Shifting the Demand Curve: Number of Consumers - N
More people in the market (total) = demand increases
Less people = demand decreases
Supply
The quantity of a product that a supplier is willing to sell at a certain price
(i.e.: Pepsi may be willing to sell only 1,000 sodas at $0.50 but is willing to sell 4,000 at $1.00)
Law of Supply
When prices increase, the quantity supplied increases, and vice versa
What does the supply curve show?
It shows the relationship between price and quantity supplied
6 Factors Shifting the Supply Curve: Subsidies and Taxes - S
Payments from the govt. to individuals, groups, businesses, etc.
- people also have to pay taxes
6 Factors Shifting the Supply Curve: Technology - T
New technology usually increases supply by lowering the cost and time of production
6 Factors Shifting the Supply Curve: Regulations (Govt.) - R
Laws/rules that either restrict/protect businesses (i.e.: pollution laws, safety standards, etc.)
6 Factors Shifting the Supply Curve: Input (Resources) Costs - I
Change in how much it costs to produce an item
(i.e.: wages increasing or decreasing, supplies and materials increasing or decreasing in expenses)
6 Factors Shifting the Supply Curve: Productivity - P
When resources for production become more efficient
(i.e.: managers motivating/de-motivating employees, the number of employees working, etc.)
6 Factors Shifting the Supply Curve: Sellers (Number of)
Firms or suppliers either enter or leave the market
(i.e.: New companies are founded, companies go bankrupt or out of business, etc.)
