Economics

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economics

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study of choices people make to satisfy their needs and wants

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economist

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one who studies economics

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microeconomics

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study of choices made by economic actors (households, companies, etc)

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macroeconomics

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study of behavior of whole economics

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consumers

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people who decide to buy things

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producers

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make the things that satisfy the consumer's wants and needs

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goods

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physical objects that can be purchased

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services

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actions or activities performed for a fee

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resource

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anything people use to make or obtain what they need or want

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factors of production

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resources used to produce goods and services (natural, human, capital resources, and entrepreneurship)

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natural resources

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items provided by nature that can be used to produce goods and provide services

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human resource

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any human effort exerted during production

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capital resources

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manufactured materials used to create products

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capital goods

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buildings, structures, machinery, tools used in production process

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technology

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use of technical knowledge and methods to create new products or make existing products more efficiently

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entrepreneurship

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organizational abilities and risk taking involved in starting a new business or introducing a new product

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scarcity

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the condition that results from the combination of limited economic resources and unlimited wants

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allocate

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distribute (as in resources)

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division of labor

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assigning a small number of tasks to each worker

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specialization

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process in which workers gain expertise in the assigned tasks (allows worker to work faster and produce more).

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3 questions all economic systems address?

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what to produce?
how to produce?
for whom to produce?

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trade off

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one good sacrificed for another

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opportunity cost

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cost of tradeoff; value of the next best alternative given up to obtain an item

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production possibilities curve

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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)

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five broad goals of an economic system?

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economic freedom, efficiency, equity, security, growth

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circular flow of production in resource market?

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households give productive resources to business
business gives money-income payment

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circular flow of production in product market?

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households give money payments to business
business gives goods and services

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Adam Smith

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father of economics, "The Wealth of the Nations", invisible hand, no govt regulation

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Karl Marx

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Das Kapital, get rid of economic classes, anti-capitalism

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full employment

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lowest possible level of unemployment in the economy (4%)

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price stability

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achieved when overall prices levels of the goods and services available in the economy are relatively constant

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standard of living

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people's economic well-being

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traditional economic system

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determined by tradition

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market economic system

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determined by individuals

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command economic system

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determined by govt officials

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mixed economic system

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govt controls some

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invisible hand

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process of supply and demand that could guide the economy without govt regulation

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market system requirement

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1. private property
2. profit motive (invisible hand)
3. competition
4. freedom of exchange

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socialism

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command economies: govt controls services more or less

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communism

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command economies: govt controls majority of everything

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utility

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usefulness

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exchange

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process in which producers and consumers agree to provide one type of item in return for another
(barter, money, credit)

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demand

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amount consumer willing/able to buy at various possible prices during a given time period

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quantity demanded

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amount demanded at each particular price

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law of demand

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increase in a good's price causes a decrease in quantity demanded and vice versa (charts from food court)

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purchasing power

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money to spend on goods/services

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income effect

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increase/decrease in purchasing power cause by change in price

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substitution effect

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tendency of consumers to substitue a similar, low-priced product for a more expensive one

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diminishing marginal utility

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(useful to a point) as a product is used, it becomes less satisfactory, more useful

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demand curve

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relationship between price of product/quantity demanded

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determinants of demand

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causes shift of ENTIRE curve at all prices:
-consumer tastes/preferences
-market size
-income
-prices of related goods
-consumer expectations

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substitute good

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can be used to replace purchase of similar goods when prices rise

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complementary good

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goods commonly used w/ other goods

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elasticity of demand

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degree to which changes in a good's price affect quantity demanded by consmers

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elastic demand

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small change in price causes major change in quantity demanded (nonessentials)

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inelastic demand

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change in price has little impact (essentials)

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revenue

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total income from selling its products

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supply

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quantity producers willing to offer at possible prices

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quantity supplied

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supply at each price

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law of supply

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more goods and service when at higher prices (benefit producers)

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profit

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revenue - costs = P

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cost

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cost of production (wages, rent, bills, materials)

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supply curve

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price vs. supply

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elasticity of supply

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degree to which price changes affect quantity supplied

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elastic supply

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small price change causes major change in quantity supplied

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inelastic supply

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price change doesn't affect (requires lots of time, money, resources)

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determinants of supply

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nonprice factors, shifts ENTIRE supply curve
-prices of resources
-government tools
-technology
-competition
-prices of related goods
-producer expectation

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law of diminishing returns

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with each additional input, output increases up to a point (starbucks and employees) --> too many is inefficient

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fixed costs

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do not change as level of output changes (rent)

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depreciation

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lessening in value

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overhead

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company's total fixed costs

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variable cost

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change as level of output changes (wages, materials)

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market equilibrium

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quantity supplied = quantity demanded at same price

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surplus

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when quantity supplied exceeds quantity demanded at a certain price

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shortage

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when quantity demanded exceeds supplied at price

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price ceiling

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government reg. establishes maximum price (rent control) (protects consumers)

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price floor

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minimum level for prices (minimum wage) (protects producers)

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rationing

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government decides how to distribute a product