Unit 1 Flashcards
Needs
Basic requirement for survival
Wants
Something we would like to have but not needed for survival
Scarcity
Unlimited wants and needs vs limited resources
Opportunity cost
Sacrificing one thing for another (guns or butters)
Economics
The study of scarcity, choice, and opportunity cost
Factors of production
Resources used to produce all goods and services
Capital
Good used to produce other goods and services (tools,machines)
Entrepreneurship
Person who takes a risk to produce goods and services
Land
Natural resources aka “gift of nature”
Labor
Human efforts to produce goods
Human capital
Skilled and knowledge of labor (more skilled= more value and productivity)
Traditional economies
Produce products using historical methods
Command economies
Set quotas to achieve production
Market economies
Are typically efficient and defined by private property rights
PPC
Graphs that show combination of 2 goods an economy can produce with fixed resources
Productive efficiency
Getting the most out of resources
Capital goods
Used for production
Consumer goods
Used for consumption
Absolute advantage
Ability to produce more of products with fixed resources or produce product with fewer resources
Comparative advantage
Ability to produce with lower opportunity cost
Terms of trade
Rate at which 1 good can be trade for another
Output
Quantity of finished product
Input
Factor of production needed to make the product
Cost benefit analysis
Compares costs to benefits to arrive to a decision
Marginal analysis
Comparing changes in marginal benefit and costs
Marginal benefit
Change in total benefit over change in quantity
Marginal cost
Change in total cost over change in quantity
Marginal utility per dollar
Calculation of a value to price ratio for the consumption of an additional unit of a product
Formula: mu/p
Utility maximization
Occurs when consumer adjusts spending to maximize total utility within income limitation
Formula: mu good x/ $p good x = mu good y/ $p good y
