ECON: Unit 1: Ch 1 Flashcards Preview

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Flashcards in ECON: Unit 1: Ch 1 Deck (35):
1

economics

the study of how people make choices when they face a limited supply of resources

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the fundamental economic problem

scarcity

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scarcity

-limited quantities of resources to meet unlimited wants
-scarcity always exists and affects every decision

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factors of production

resources used to make all goods and services
-land, labor, capital (any human made resource used to produce other goods and services)

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physical capital

goods used to make other goods ie tools and buildings

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human capital

knowledge and skills a worker gains through education and experience ie schooling

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entrepreneurs

leaders who decide how to combine land/labor and capital resources to create new goods and services

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opportunity cost

most desirable alternative given up as a result of a decision, ie buy a computer=no vacation

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efficiency

using resources to maximize the production of goods and services
-underutilization: using fewer resources than an economy is capable of using

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cost

the alternative that is given up due to a decision

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resources and technology

must 1st determine which goods and services a country can produce, given its current resources
-both human and physical capital reflect a vital ingredient: technology

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microeconomics

individuals, households, business

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macroeconomics

the economy as a whole

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positive economics

describes how things are
-what impact will a salary increase have on next years budget?
-role of most economists

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normative economics

-focus on how things ought to be done
-what actions should we take now to reduce expenses to balance next years budget?
-economists working with government to create policy

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consumer decisions

-has a fixed amount of funds/budget
-how can they get the most quantity for amount of money allotted?

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producer decisions

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

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"there is no such thing as free lunch"

-everything has a cost
-someone pays for the production/uses time for a "free" object

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7 principles to guide an economic way of thinking

1. scarcity forces tradeoffs
2. cost vs benefits
3. thinking at the margin
4. incentives matter
5. trade makes people better off
6. markets coordinate
7. future consequences count

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scarcity forces tradeoffs

due to scarcity and consequences of making choices, people have to make sacrifices

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cost vs benefits

when making a trade off, we must weigh the cost of the decision vs the benefits
-goal: for the benefits to outweigh the costs

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thinking at the margin

costs and benefits of adding 1 more unity of a good or subtracting one
-example: how will i feel after 1 more cookie BAD THE ANSWER IS ALWAYS BAD

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incentives matter

motivational, responses are predictable, can be positive or negative incentives, will influence decision making

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trade makes people better off

someone wont engage in trade if it doesn't make them better off. focus on what we do well and trade for what you need/want

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markets coordinate

when markets operate freely with limited government interference
-capitalism
-adam smiths philosophy in wealth of nations
-"the invisible hand"

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future consequences count

most people are shortsighted, economists must consider all consequences.
-law of unintended consequences (unexpected results from action)

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economic interaction

exchanges of goods and services between people
-how we get what we want

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market

an arrangement by which economic exchanges between people take place
-how we get what we want

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price and scarcity

price is determined by scarcity
-need: something we must have to survive
-wantL a way to fulfill a need

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paradox of value

-why are diamonds (a want) more expensive than water (a need)?
-diamonds are more scarce than water

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growth

more people or inventions

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law of increasing costs

as production switches from 1 item to another, more and more resources are necessary to increase production, therefor opportunity cost increases

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production possibilities

alternative combos of production of various goods that are possible, given the economys resources

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points inside PPC curve

represents inefficient combos, able to increase production without having to decrease 1/2 productions

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points outside PPC curve

represents combo that is unattainable to produce with given resources
-can eventually reach w shift in economy/resources/population