Economics - Ch.01: What Is Economics?

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scarcity

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THE FUNDAMENTAL PROBLEM - the condition that results from a society not having enough resources to produce all the things people would like to have

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Economics

Back 2

the study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources

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need

Back 3

basic requirement for survival and includes, food, clothing, and shelter

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want

Back 4

a way of expressing a need

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TINSTAAFL

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"There is No Such Thing as a Free Lunch"

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Three Basic Questions

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1) WHAT to produce
2) HOW to produce
3) FOR WHOM to produce

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Factors of Production

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resources required to produce the thing we would like to have -
1) land
2) capital
3) labor
4) entrepreneurs

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land

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refers to the "gifts of nature," or natural resources not created by humans

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capital

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the tools, equipment, machinery, and factories used in the production of goods and services

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financial capital

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the money used to buy the tools and equipment used in production

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labor

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people with all their efforts, abilities, and skills

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entrepreneurs

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a risk-taker in search of profits who does something new with existing resources (thought of as the driving force in an economy)

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production

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the process of creating goods and services (when all factors of production are present)

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Gross Domestic Product (GDP)

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the dollar value of all final goods and services, and structure produced within a country's borders in a 12-month period

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economic products

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goods and services that are useful, relatively scarce, and transferable to others

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good

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an item that is economically useful or satisfies an economic want

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consumer good

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intered for final use by individuals

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capital goods

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manufactured goods that are used to produce other goods and services

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service

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work that is performed for someone

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consumer

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a person who uses goods and services to satisfy wants and needs

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value

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refers to a worth that can be expressed in dollars and cents (must have scarcity and utility)

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paradox of value

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the situation where some necessities, such as water, have little monetary value, whereas some non-necessities, such as diamonds, have a much higher value

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utility

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the capacity to be useful and provide satisfaction

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wealth

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the accumulation of those products that are tangible, scarce, useful, and transferable from one person to another

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The Wealth of Nations (1776)

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written by Adam Smith, referred specifically to the ability and skills of a nation's people as the source of its wealth

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market

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a location or other mechanism that allows buyers and sellers to exchange a certain economic product

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factor markets

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the markets where productive resources are bought and sold

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product markets

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the markets where producers sell their goods and services to consumers

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economic growth

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occurs when a nation's total output of goods and service increases over time (productivity most important factor)

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productivity

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a measure of the amount of output produced by a given amount of inputs in a specific period of time

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division of labor

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takes place when work is arranged so that individual workers do fewer tasks than before

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specialization

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takes place when factors of production perform tasks that they can do relatively more efficiently than others

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human capital

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the sum of the skills, abilities, health, and motivation of people

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economic interdependence

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economic activities in one part of the country or world that affect what happens elsewhere

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trade-offs

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alternative choices whenever making an economic decision

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opportunity cost

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the cost of the next best alternative use of money, time, or resources when one choice is made rather than another

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production possibilities frontier

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an economic model representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed

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model

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a simplified theory or a simplified picture of what somethign is like or how something works

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cost-benefit analysis

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a way of thinking about a problem that compares the costs of an action to the benefits received

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free enterprise economy

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one in which consumers and privately owned businesses, rather than government, make the majority of the WHAT, HOW, and FOR WHOM decisions

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standard of living

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the quality of life based on the possession of the necessities and luxuries that make life easier