Unit 1 Flashcards
Need
Goods that are necessities for survival
Want
Goods that make life more comfortable or enjoyable
Scarcity
The result of limited sources and people’s unlimited needs; the main problem in economics
Trade-offs / Alternatives
Alternatives (choices) that must be given up when one is chosen rather than another
Opportunity Costs
Cost of the next best alternative use of money/time/resources when one choice is made rather than another; value of the thing you give up when you make a choice
Goods
Items (particularly products and services) satisfying people’s needs and wants
(i.e.: anything built/manufactured
(computers, houses, etc.))
Services
Work/labor performed by someone
(i.e.: haircuts, entertainment, teaching, etc.)
Factors of Production: 1) Capital Resources
Human-made stuff used to make something else
(i.e.: tools, equipment, machines)
Factors of Production: 2) Natural Resources/Land
Natural stuff used in making a good/service
(i.e.: Land, water, oil, etc.)
Factors of Production: 3) Human Resources (Labor)
Labor and skills used to make/sell a product
Factors of Production: 4) Entrepreneurs
Someone who does something new, unique, and/or creative with resources
(i.e.: Walt Disney, Bill Gates, etc.)
Market
1) Meeting place (physical and online) for buyers and sellers
2) Where voluntary exchanges take place
3) The sum of all the individual’s choices/purchases
Factor Market
Market for resources
- Where most people work and earn wages
- Where businesses get resources for their products
Product Market
Where goods and services are bought and sold
- Consumers spend money that they earn from their jobs in the factor market
What do choice and scarcity have to do with economics?
- Have to make choices with limited money, time, and resources
- Not all things we want and need in life are unlimited; we only have limited time, money, water, food, etc.
Cost Benefit Analysis
A process of measuring the costs and benefits of a project to weight them against other projects to make a decision
CBA Steps
1) Determine Costs
2) Calculate Benefits
3) Compare Alternatives
4) Report and Plan Action
Benefit-Cost Ratio Formula
(Predicted Value of Expected Benefits / Predicted Value of Expected Costs)
(i.e.: Project 1 -> 80k Cost / 120k Benefit = 1:5 ratio)
What is the discount/interest rate often used for today?
To normally borrow money and adjust future money into present-day value
Annual Interest Formula
A = P x (1 + r)^t
A = Final Amount
P = Initial Amount
R = Interest/Discount Rate
T = Time
Annual Interest Formula Practice:
How much will $100 be worth a year from now at a 5% discount rate?
A = 100 x (1+0.05)^1
A = 105 dollars
Annual Interest Formula Practice:
How much is $100 a year from now worth today at a 5% discount rate?
100 = P x (1 + 0.05)^1
P = 95.24 dollars
Economic Systems: 1) Traditional
A system that relies on customs, history, and time-honored beliefs.
- Tradition impacts production and distribution
- Dependent on agriculture, fishing, hunting, gathering, etc.
- Bartering > money
Economic Systems: 2) Command
A system where production is publicly owned
- A central authority controls economic activity, assigning quantitative production goals and issuing raw materials to productive enterprises (businesses, firms, etc.)
