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78 Cards in this Set

  • Front
  • Back
study of choices people make to satisfy their needs and wants
one who studies economics
study of choices made by economic actors (households, companies, etc)
study of behavior of whole economics
people who decide to buy things
make the things that satisfy the consumer's wants and needs
physical objects that can be purchased
actions or activities performed for a fee
anything people use to make or obtain what they need or want
factors of production
resources used to produce goods and services (natural, human, capital resources, and entrepreneurship)
natural resources
items provided by nature that can be used to produce goods and provide services
human resource
any human effort exerted during production
capital resources
manufactured materials used to create products
capital goods
buildings, structures, machinery, tools used in production process
use of technical knowledge and methods to create new products or make existing products more efficiently
organizational abilities and risk taking involved in starting a new business or introducing a new product
the condition that results from the combination of limited economic resources and unlimited wants
distribute (as in resources)
division of labor
assigning a small number of tasks to each worker
process in which workers gain expertise in the assigned tasks (allows worker to work faster and produce more).
3 questions all economic systems address?
what to produce?
how to produce?
for whom to produce?
trade off
one good sacrificed for another
opportunity cost
cost of tradeoff; value of the next best alternative given up to obtain an item
production possibilities curve
shows all of the possible combinations of two goods or services that can be produced within a stated time period given an unchanging of resources and technology and most efficient processes are being utilized

(point lying inside or below the production possibilities curve represents inefficient use of existing resources)
five broad goals of an economic system?
economic freedom, efficiency, equity, security, growth
circular flow of production in resource market?
households give productive resources to business
business gives money-income payment
circular flow of production in product market?
households give money payments to business
business gives goods and services
Adam Smith
father of economics, "The Wealth of the Nations", invisible hand, no govt regulation
Karl Marx
Das Kapital, get rid of economic classes, anti-capitalism
full employment
lowest possible level of unemployment in the economy (4%)
price stability
achieved when overall prices levels of the goods and services available in the economy are relatively constant
standard of living
people's economic well-being
traditional economic system
determined by tradition
market economic system
determined by individuals
command economic system
determined by govt officials
mixed economic system
govt controls some
invisible hand
process of supply and demand that could guide the economy without govt regulation
market system requirement
1. private property
2. profit motive (invisible hand)
3. competition
4. freedom of exchange
command economies: govt controls services more or less
command economies: govt controls majority of everything
process in which producers and consumers agree to provide one type of item in return for another
(barter, money, credit)
amount consumer willing/able to buy at various possible prices during a given time period
quantity demanded
amount demanded at each particular price
law of demand
increase in a good's price causes a decrease in quantity demanded and vice versa (charts from food court)
purchasing power
money to spend on goods/services
income effect
increase/decrease in purchasing power cause by change in price
substitution effect
tendency of consumers to substitue a similar, low-priced product for a more expensive one
diminishing marginal utility
(useful to a point) as a product is used, it becomes less satisfactory, more useful
demand curve
relationship between price of product/quantity demanded
determinants of demand
causes shift of ENTIRE curve at all prices:
-consumer tastes/preferences
-market size
-prices of related goods
-consumer expectations
substitute good
can be used to replace purchase of similar goods when prices rise
complementary good
goods commonly used w/ other goods
elasticity of demand
degree to which changes in a good's price affect quantity demanded by consmers
elastic demand
small change in price causes major change in quantity demanded (nonessentials)
inelastic demand
change in price has little impact (essentials)
total income from selling its products
quantity producers willing to offer at possible prices
quantity supplied
supply at each price
law of supply
more goods and service when at higher prices (benefit producers)
revenue - costs = P
cost of production (wages, rent, bills, materials)
supply curve
price vs. supply
elasticity of supply
degree to which price changes affect quantity supplied
elastic supply
small price change causes major change in quantity supplied
inelastic supply
price change doesn't affect (requires lots of time, money, resources)
determinants of supply
nonprice factors, shifts ENTIRE supply curve
-prices of resources
-government tools
-prices of related goods
-producer expectation
law of diminishing returns
with each additional input, output increases up to a point (starbucks and employees) --> too many is inefficient
fixed costs
do not change as level of output changes (rent)
lessening in value
company's total fixed costs
variable cost
change as level of output changes (wages, materials)
market equilibrium
quantity supplied = quantity demanded at same price
when quantity supplied exceeds quantity demanded at a certain price
when quantity demanded exceeds supplied at price
price ceiling
government reg. establishes maximum price (rent control) (protects consumers)
price floor
minimum level for prices (minimum wage) (protects producers)
government decides how to distribute a product