Chapter 1 - 2 Economics Test

command economy

A system where the government, rather than the free market, determines what goods should be produced, how much should be produced and the price at which the goods will be offered for sale. The command economy is a key feature of any communist society. China, Cuba, North Korea and the former Soviet Union are examples of countries that have command economies.

market economy

An economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's citizens and businesses and there is little government intervention or central planning. This is the opposite of a centrally planned economy, in which government decisions drive most aspects of a country's economic activity.

utility

An economic term referring to the total satisfaction received from consuming a good or service. "worth"

trade-off

An exchange of one thing in return for another, especially relinquishment of one benefit or advantage for another regarded as more desirable.

value

Estimate the monetary worth of (something): "his estate was valued at $45,000".

economic products

Something produced by human or mechanical effort or by a natural process that can be sold.

economics

The branch of knowledge concerned with the production, consumption, and transfer of wealth. The condition of a region or group as regards material prosperity.

division of labor

a production process in which a worker or group of workers is assigned a specialized task in order to increase efficiency.

production possibilities frontier

is a graph that compares the production rates of two commodities that use the same fixed total of the factors of production. Graphically bounding the production set, the PPF curve shows the maximum specified production level of one commodity that results given the production level of the other. By doing so, it defines productive efficiency in the context of that production set. A period of time is specified as well as the production technologies. The commodity compared can either be a good or a service. PPFs are normally drawn as bulging upwards ("concave") from the origin but can also be represented as bulging downward or linear (straight), depending on a number of factors.

capital goods

is a manufactured means of production.Capital goods are acquired by a society by saving wealth which can be invested in the means of production. Ex. Individuals, organizations and governments use capital goods in the production of other goods or commodities. Capital goods include factories, machinery, tools, equipment, and various buildings which are used to produce other products for consumption. Capital goods, then, are products which are not produced for immediate consumption; rather, they are objects that are used to produce other goods and services. These types of goods are important economic factors because they are the key to developing a positive return from manufacturing other products and commodities.

inflation

is a rise in the general level of prices of goods and services in an economy over a period of time.[1] When the general price level rises, each unit of currency buys fewer goods and services.

traditional economy

is any economic system involving extensive subsistence agriculture or one that otherwise falls outside the definitions of market or planned economies. Examples of traditional economies include those of the Inuit or those of the tea plantations in south India.[1] Traditional economies are popularly conceived of as "primitive" or "undeveloped" economic systems, having tools or techniques seen as outdated.

paradox of value

is the apparent contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market. The philosopher Adam Smith is often considered to be the classic presenter of this paradox.

trade offs in the form of next best alternative

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economic interdependence

A characteristic of a society or macroeconomy with a high degree of division of labor, where people depend on other people to produce most of the goods and services required to sustain life and living.

standard of living

A level of material comfort as measured by the goods, services, and luxuries available to an individual, group, or nation. (Economics) a level of subsistence or material welfare of a community, class, or person

wealth

An abundance of valuable possessions or money. The state of being rich; material prosperity.

profit

An advantageous gain or return; benefit.The return received on a business undertaking after all operating expenses have been met.The return received on an investment after all charges have been paid. Often used in the plural.The rate of increase in the net worth of a business enterprise in a given accounting period. Income received from investments or property.The amount received for a commodity or service in excess of the original cost.

goods and services

Goods and services represent an important term in basic economics. Goods are tangible things that can be consumed, such as clothes and food. Services are actions people perform, such as haircuts or cleaning services.

consumer goods

Goods bought and used by consumers, rather than by manufacturers for producing other goods.

circular flow of activity

In economics, the terms circular flow of income or circular flow refer to a simple economic model which describes the reciprocal circulation of income between producers and consumers. In the circular flow model, the inter-dependent entities of producer and consumer are referred to as "firms" and "households" respectively and provide each other with factors in order to facilitate the flow of income.Firms provide consumers with goods and services in exchange for consumer expenditure and "factors of production" from households. More complete and realistic circular flow models are more complex. They would explicitly include the roles of government and financial markets, along with imports and exports.

consumer sovereignty

It refers to consumers determining the production of goods[1]. The term can prescribe what consumers should be permitted, or describe what consumers are permitted. The term was coined by William Hutt in his 1936 book "Economists and the Public".

four factors of production

Land, labor, capital, and entrepreneurship Definition Resources required for generation of goods or services, generally classified into four major groups: (1) Land (including all natural resources), (2) Labor (including all human resources), (3) Capital (including all man-made resources), and (4) Enterprise (which brings all the previous resources together for production). These factors are classified also as management, machines, materials, and money (this, the 4 Ms), or other such nomenclature. More recently, knowledge has come to be recognized as distinct from labor, and as a factor of production in its own right.

free enterprise

The freedom of private businesses to operate competitively for profit with minimal government regulation.(Economics) an economic system in which commercial organizations compete for profit with little state control

profit motive

The intent to achieve monetary gain in a transaction or material endeavor. This can also be construed as the underlying reason why a taxpayer or company participates in business activities of any kind. Also this must be determined for some transactions to determine the deductibility of any expenses involved.

what to produce how to produce and for whom to produce

The organization of activity to produce goods and services for given consumers. The central problems are: what to produce, how to produce it, and whom to produce it for; to allocate human resources to supply wants when there is a scarcity of the factors of production, most of which have alternative uses. Any economic system should be able to determine the needs of society for goods and services, ensure the correct allocation of the factors of production to industry, provide and maintain investment, distribute goods and services by matching supply to demand, and utilize resources efficiently.

economic equity

The situation in an economy in which the apportionment of resources or goods among the people is considered fair.

opportunity cost

is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen). It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices.[1] The opportunity cost is also the "cost" (as a lost benefit) of the forgone products after making a choice. Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice".[2] The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently.[3] Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs.