Unit 1: Basic Econmic Concepts Flashcards
Economics
The study of how people make decisions given the resources that are provided to them.
Positive Economics
Based on facts that can be present or disproven using a scientific approach. Ex. The employment rate in France is higher than the United States.
Normative Economics
Personal perspectives or opinions on desirable or undesirable economic situations, and how to improve economic development.
Factors of Production
Land, labor, entrepreneurship, and capital. The inputs needed for the creation of goods and services.
Labor
The effort of workers; the work that people do to produce goods and services.
Entrepreneurship
The process of bringing together the three factors of production(natural, human, and resources). Ex. An individual organizes a business and invests their time and money in hopes of earning a profit.
Physical Capital
The manufactured goods used to make other goods and services.
Human Capital
The experience in training that makes workers more productive and more valuable.
Land
Resources that come from nature, such as timber, wind, and petroleum.
Opportunity Cost
The trade-off of the value of one good or service for the value of another is the opportunity cause of the choice. Ex. the value of the next best alternative that is given up when making a decision.
Comparative Advantage
The ability to produce a good or service at a lower opportunity cost than another producer.
Absolute Advantage
When a person, business, or country can produce more of a good or service than another producer that has the same quantity or resource.
Production Possibilities Curve(PPC)
Illustrates the trade-off and opportunity causes associated with the production of two goods or services. There are different types of PPC’s like: concave(increasing), constant(straight line), economic growth, shrinking economy, factors of production.
Production Possibilities Frontier
Illustrates the combinations of goods produced and how resources are fully utilized.
Constant Curve(Straight Line)
When the opportunity cost remains the same across all production levels.
Convex curve(a J)
Acts as a base distribution, information about how it can help quantitive(measure) predictions about how prices change in future periods.
Economic Growth
The Increase of goods and services in one period time compared with a previous period.
Command Economy
The central or state government determines the goods produced, prices of goods, and services provided in the wages of workers. Typically found in communist governments.
Market Economy
Economic decisions are made by individual buyers and sellers, guided by supply and demand. Key points: Private property, freedom, self-interest, competition, minimum government intervention.
Traditional Economy
The production of goods and services is based on the particular society’s, traditional customs or beliefs. Key points: people will make what they have always made and will do the same work their parents did; the exchange of goods is done through bargaining.
Mixed Economy
Combination of both pure command and market economies. It accepts private property permits and economic freedom in the use of capital, but also allows the government to intervene in economic activities to achieve social aims.
Scarce
When a resource is not available sufficient qualities to satisfy all the various ways a society wants to use it.
Terms of Trade
Indicates the rate at which one good can be exchanged for another.
Specialization
Focusing production on select goods to increase efficiency.
Efficiency
A measure of how well a society uses its scarce resources to produce goods and services; waste is eliminated or minimized.
Model
A simplified representation used to better understand a real-life situation.
Resource
Anything that can be used to produce something else; also called factor of production.
Macroeconomics
The study of the impact of changes in the economy as a whole rather than on an individual part.
Trade-off
When one thing is given up in order to obtain something else.
