Economics Test #1

PPF curve

is a boundary dividing points on the inside, which do not fully utilize current resources, from points on the outside which are unattainable with current available resources and technology.

Market

is a medium that allows buyers/sellers of a specific good/service to interact in order to facilitate an exchange.

Change in quantity demanded

is a movement along the demand curve in response to a change in price.

"No such thing as a free lunch"

is a situation in which a good or service is received at no cost, with the true cost of the good/service ultimately borne by some party, which may even include the recipient.

Product market

is the market place in which final goods/services are offered for purchase by consumers, businesses, and the public sector.

Rational self interest

is the principal that an action is rational if and only if it maximizes one's self interest.

Natural resources

materials or substances such as minerals, forests, water, and fertile land that occurs in nature and can be used for economic gain

Economic theory

provides an outlet for research in all areas of economics based on rigorous topics in mathematics that are supported by the analysis of economic problems.

Market economies

economic decisions and the pricing of goods/services are guided solely by the aggregate interactions of a country's individual citizens and businesses.

Traditional economy

economies based on customs/ religion

Exhaustible vs. Renewable resources

exhaustible resources are resources that cannot be replenished, re-grown, or regenerated. (Coal, natural gas, petroleum) Renewable resources can be replenished. ( hence we will never run out of them) (wood, timber)

Human resources

the personnel of a business or organization

Law of demand

the quantity of a good demanded per period relates inversely to it's price, other things constant.

Profit (formula)

total revenue - total cost

Complements

when you buy one good, you usually will buy another good to go with it.

Demand

a relation showing the quantities of a good that consumers are willing and able to buy at various prices.

Goods & Services

goods are tangible items such as books, shoes, salt, hats, etc. Services are activities provided by other people such as doctors, lawn care workers, etc.

Substitutes

goods that replaces another good

Labor

work, mental or physical

Resource market

a market where a business can go and purchase resources to produce goods/services

Demand is...

<1= Elastic, >1= Inelastic, =1= Unit elastic

Productive resources

the inputs used to produce the goods and services that people want.

Opportunity cost

the most desired goods/services that must be forgone in order to obtain something.

Circular flow model

a model of the economy in which the major exchanges are represented as flows of money, goods, services, etc. between economic agents

Entrepreneur

a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.

4 types of market participants

- Households - Firms - Governments - Rest of world

3 major problems of capitalism

- Inequality of wealth tends to go to a small % of population - Monopolies allows firms to gain monopoly power and exploit consumers. - Immobility: some people will find it hard to find a job due to certain skill sets.

4 Productive Resources

- Labor - Land - Capital - Technology

Elasticity of demand (formula)

% change in quantity demanded/ % change in price

Determinants of Demand Elasticity

- Availability of substitutes - Share of consumer's budget spent on the good - Necessities vs. luxuries - Time- urgency of purchase.

Determinants of Demand curve shift

- Changes in income (normal vs. inferior goods) - Changes in the price of related goods - Changes in consumer expectations - Changes in tastes/preferences - Changes in population

The 3 key questions economic systems must answer

- Who? (consumes goods/services) - What? (goods/services be produced) - How? (should goods/services be produced)

3 Major problems of socialism

- You can't legislate the poor into prosperity by legislating the wealthy out of prosperity - What one person receives without working for, another must work for without receiving - The government can't give to anyone that the government doesn't first take form somebody else.

Define & describe a socialist economic system (command)

A socialist economy is a national financial system based on the public or cooperative ownership and administration of primary production capabilities. In a socialist economy, production involves the goal of creating useful services/goods of value. Such economic systems typically employ central planning and use accounting systems based on labor hours expended in production. (All government controlled)

Define & describe a capitalist economic system (market)

Capitalism is an economic system in which capital goods are owned by private individuals or businesses. The production of goods/services is based on supply and demand in the general market, rather than through central planning. Laissez-Faire capitalism is the purest form of capitalism in which private individuals are completely free to invest wherever, what to produce and which to set prices without checks or controls.

PPF (Production Possibilities Frontier)

Is a simple model that illustrates the trade offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity produced of the other.

Capitalism answers the 3 questions by

Who: General market What: whatever is in demand How: through the demand of consumer

Socialism answers the 3 questions by

Who: Government What: Government How: Government

Capital goods vs. Consumer goods

a capital goods is any good deployed to help increase future production. Consumer goods are any goods that are not capital goods; they are goods used by consumers.

Scarcity

a condition facing all societies because there are not enough productive resources to satisfy people's unlimited wants.

Sunk cost

a cost that has already been incurred an cannot be recovered

Capital resources

are goods made and used to produce other goods/services. ( also called capital goods)

Inferior good

demand for an inferior good actually decreases as income increases (and visa versa)

Transitional economy

moving from one economy to another

Total revenue (formula)

price $ * quantity (q)

National economies

refers to the economy of an entire country and includes financial resources and management. It encompasses the value of all goods and services manufactured within a nation.

Other-things-constant-assumption

the assumption when focusing on the relation among key economic variables, that the other variables remain unchanged; in Latin, Ceteris Paribus

Economics

the branch of knowledge concerned with the production, consumption, and transfer of wealth

Normal good

the demand for a normal good increases as income increases