Unit 1: Economic Theory and Systems
Land
(Factors of production-Macroeconomics) ________ includes all production inputs provided by nature. ________ leads to income called rent.
Capital
(Factors of production-Macroeconomics) __________ includes all the human-made goods used in the production of other goods and services. _________ leads to income called interest.
Labor
(Factors of production-Macroeconomics) __________ is the work of employees possession human capital. _______ leads to income called a wage.
Entrepreneurship
(Factors of production-Macroeconomics) __________ take risks and organize the factors of production. _________ leads to income called prot.
Factors of production
(Macroeconomics) the inputs needed for the creation of a good or service...the "stuff" that turns into finished products and services
Equilibrium
(Microeconomics) "ideal" price of a good exists when the quantity buyers demand matches the price sellers are willing to sell at. - As supply and demand shift, the equilibrium price and quantity shift as well.
Demand curve
(Microeconomics) a simple graph showing the quantity of a good that buyers wish to buy at each price. - DOWNWARD sloping
Supply curve
(Microeconomics) a simple graph showing the quantity of a good that sellers wish to sell at each price. - UPWARD sloping
Market
(Microeconomics) for any good consists of all the buyers and sellers of that good.
Laissez-faire
- a policy or attitude of letting things take their own course, without interfering. - government plays a limited role in economic affairs as is common in market economies.
Invisible Hand
Adam Smith's Theory - "Every individual is continually exerting himself to and out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society."
Examples of Command Economy
China, Venezuela
The "Socialist" economic systems
Command Economy
What is the proper role of the state in the market?
Each country strikes a dierent balance of state-market interaction.
Macroeconomics
Examines decisions made by countries and governments - takes a top-down approach focusing on the economy as a whole, trying to determine its course and nature. - considers the country and how its policies impact the economy as a whole. It analyzes entire industries and economies, rather than individuals or specic companies.
In a Command Economy
Government officials decide how the economic landscape of a country should look.
GDP
Gross domestic product - measure of how much an economy produces. - GDP equals the market value of all goods and services produced
Rational choice
In economics, we examine the decisions we make under conditions of scarcity.
The "Capitalist" economic systems
Market Economy
In a Market Economy
People decide for themselves which careers to pursue and which products to produce or buy.
Microeconomics
Studies specic individuals and business decisions - takes a bottom-up approach focusing on supply, demand, and forces that determine price levels. - considers the allocation of resources (cereal boxes), taxes, regulations, policy, and prices at which they trade goods and services.
Opportunity cost:
The loss of potential gain from other alternatives when one alternative is chosen.
Examples of Market Economy
United States, Hong Kong
The Circular flow model
a macroeconomic model that captures the motion of factors of production (inputs), nished goods and services (outputs), and money through the market.
The fundamental problem of economics
allocation of limited resources to fulll unlimited wants and needs.
In a Command Economy
collectively controlled property, state-directed industry, government intervention in markets with regulation, stabilization, etc.
An increase in GDP demonstrates an increase in production and therefore....
economic growth
Firms purchase factors of production from households in the
factors/resource market
producers (referred to as "________")
firms
In a Command Economy
focus on economic equality and security; overall economic security; and government intervention
In a Market Economy
focus on growth, competition, and eciency; economic freedom; and independence from government intervention
consumers (referred to as "____________").
households
All financial decisions.....
involve economics
not all economic decisions.....
involve finance
Goods and services NOT sold in markets are........
not counted in GDP of all final goods and services
Goods used in the production of other goods ("intermediate goods")......
not counted in GDP of all final goods and services
In a Market Economy
private property, individual choice, laissez faire economic policy
The circular ow accounts for two primary participants in the economy:
producers and consumers
Households purchase nished goods and services from rms in the
product market
Command Economy
production and distribution decisions are directed by a central authority, typically a national government or political party.
Market Economy
production and distribution decisions are left to individuals interacting in private markets.
Economics involves
rational choices.
Scarcity
the gap between what we have and what we want/need.
