Chapter 1: What is Economics? (Lesson 3)

Why does economic growth require risks + sacrifices?

Making investments can increase the chance of growth or progress of a company. Not making investments will result in little growth + progress of a business.

What is Cost-Benefit Analysis?

Used to decide on a single course of action or make a choice between 2 different ideas - comparing benefits of action to expected cost. Example: Basketball Game Benefits - time with friends + enjoyment. Cost - time away from studying + $ admission + loss of sleep. If benefits are +1 than cost go to the basketball game. If benefits are -1 than cost don't go to the basketball game.

What is Economic Interdependence?

When we rely on others + others rely on us to provide +1 products(goods + services) we consume. Events in 1 part of the world has a dramatic impact elsewhere. Not bad - Balanced = productivity + income result from connection almost always / costs associated with loss of independence.

What are Factor Markets?

Where all factors of production are bought + sold - where entrepreneurs hire labor for wages + salaries + acquire/obtain land in return for rent + borrow money to run a business

What is the Circular flow of Economic Activity?

Diagram shows how markets connect people + businesses in economy. A key feature is the market = location or other mechanism that allows buyers + sellers to exchange a specific product(may be local, national, global, or exist on the internet. Most important is the 1 that makes up the financial system. Financial markets help all parts of the economy work smoothly.

What is the Division of Labor and Specialization?

Each worker does separate part of a task = Worker performs 1 task all day +1 production of a product whereas, if 1 person did 7 task production would -1. When factors of production do only tasks that they are efficient at. Example: Henry Ford's Assembly Line 1 task best for 2 or 3 workers +1 production -1 price of a car.

What is Free Enterprise Economy?

Economy in which consumers + privately owned business make up the what, how, and whom decisions.

What is the result of increases in productivity?

Everyone in society benefits when scarce resources are used efficiently. Productivity = Amount of goods + services produced with a given amount of resources in a specific amount of time. Production usually discussed in labor applies to all 4 factors of production. Example: A company produced 5,000 pencils in 1hr and the production increases by 1,000 in the same amount of time due to productivity.

What are Product Markets?

Markets where producers sell goods + services. Wages + Salaries + other income are spent on products and services provided by businesses. Example: You feed a soda machine for soda. Your money you fed to the machine doesn't go directly to the producer, but when it does that $ can be used to buy more soda for the soda to be sold.

Why is economic growth important?

Nation's total output of services increases over time. Important *2 1. Because of scarcity, everyone wants more goods + services in the future than they already have 2. If a population increases there will be more people that want goods + services in the future.

What does the Role of Markets explain?

People + Businesses are connected by markets. Example: You have never visited the factory made your tennis shoes or car + makers of your car + tennis shoes never met you, but you + producer are connected through the market(where you purchase goods - Market, Salon, or Vitamin Shoppe).

What is the description of Economic Growth?

Production Possibility Curve shows various combinations of good + services that can be produced when all factors of production are fully used. Production possibility curve becomes greater or wider when population + stock of capital increases. Economic growth due to more resources + increased productivity + Production possibility curve +1.

What is the Standard of Living?

Quality of life based on the ownership of necessities + luxuries to make life easier.

What are Economic Models?

Simplified equation, graph, or figure showing how something works based on what producers think is true(assumptions). Example: Simple Model - Possibility Curve explaining complex economic activities in a simple manner.

What does it mean to be an Economist?

Studying how people satisfy unlimited + competing for wants through careful use of resources + evaluating strategies that will aid people in making the best choices.

What is the importance of Human Capital?

Sum of people's skills, abilities, health, knowledge, and motivation(desire to achieve). Individuals can invest in their education by finishing school. Business training + other programs +1 # of workers. Government providing financial educational aide + health care and also +1 # of workers in a certain profession.