Econ. Chapter 1

Need

basic requirement for survival, such as food, clothing, and shelter

T.I.N.S.T.A.A.F.L

"There is no such thing as a free lunch"

Opportunity Cost

1. The cost of the next-best alternative. 2. Even time has an opportunity cost.

Entrepreneur

Entrepreneurs are singled out because they are the innovators responsible for much of the change in our economy. An entrepreneur is a risk taker in search of profits who does something new with existing resources. They start new businesses or bring new products to the market. Entrepreneurs are the fourth factor of production.

Factors of Production

resources required to produce the things we would like to have are land, capital, labor, and entrepreneurs.

Want

simply something we would like to have but is not necessary for survival

Scarcity

the condition that results from society not having enough resources to produce all the things people would like to have Scarcity is the fundamental economic problem that forces consumers and producers to use resources wisely

Capital / Capital goods

the tools, equipment, machinery, and factories used in the production of goods and services. It is a result of production. Capital is the second factor of production.

Production Possibilities curve (frontier)

1. A diagram representing various combinations of goods and services an economy can produce when all its resources are in use.

Division of Labor

1. A way of organizing work so that each individual worker completes a separate part of work. 2. A worker who preforms a few tasks many times a day is likely to be more proficient.

Value

1. A worth that can be expressed in dollars and cents. 2. For something to have monetary value, it must be scare and have utility.

Paradox of Value

1. Adam Smith observed this. 2. He observed that some necessities, such as water, had a very low monetary value, while other things like diamonds have a very high value.

Explanation

1. After analysis, economists need to communicate this knowledge to others. 2.If we all have a common understanding of the way our economy works, some economic problems will be easier to fix and address.

Product Markets

1. After individuals receive their income from the resources they sell in a factor market, they spend it in product markets. 2. These are markets where producers sell their goods and services. 3. Thus, the wages and salaries that individuals receive from businesses in the factor markets returns to the product markets. 4. Businesses use this money to produce more goods and services, and cycle repeats itself.

free enterprise economy

1. An economy in which consumers and privately owned businesses, rather than the government, make the majority of the what, how, and for whom decisions.

Nondurable Good

1. An item that lasts for fewer than three years when used on a regular basis. (ex. Food, paper, etc.)

Durable good

1. Any good that lasts three years or more when used on a regular basis. 2. Durable goods include both capital goods, such as robot welders, and consumer goods, such as cars.

4 Key elements to Economy:

1. Description 2. Analysis 3. Explanation 4. Prediction

Analysis

1. Economics analyzes the economic activity that it describes. (ex: why are some items higher than others? Why do some people earn higher incomes than others?) 2. Analysis is important because it helps us discover why things work and how things happen.

Trade-offs

1. Every decision we make has its trade-offs, or alternative choices. 2. To help us make these decisions, we can make models. It forces you to consider a number of alternatives and the criteria you'll use to evaluate the alternatives.

Utility

1. For something to have value, it must have utility, or the capacity to be useful and provide satisfaction. 2. The ability of capacity of a good or service to be useful and give satisfaction to someone.

Consumer Goods

1. Goods intended for final use by individuals

Factor Markets

1. Individuals earn their incomes in factor markets, where the factors of production are bought and sold. 2. This is where entrepreneurs hire labor of wages and salaries, acquire land in return for rent, and borrow money.

Adam Smith

1. Invisible Hand 2. Division of Labor and specialization 3. Wealth of Nations

Market

1. Market is a location or other mechanism that allows buyers and sellers to exchange a specific product. 2. Markets may be local, national, or global, or on the internet.

cost-benefit analysis

1. Most economic decisions can be evaluated with cost-benefit analysis, a way of comparing the costs of an action to the benefits received.

Economic Growth

1. Nation's total output of goods and services increases overtime. 2. The circular flow becomes larger, with more factors of production, goods, and services flowing in one direction and more payments in the opposite direction.

Consumers

1. People who use goods and services to satisfy their wants and needs. 2. Consumers indulge in consumption, the process of using up goods and services in order to satisfy wants and needs.

Economic Model

1. Simplified equation, graph, or figure showing how something works. 2. They can reduce complex situations to their most basic elements. 3. Models are based on assumptions. 4. Models can be revised to make them better.

Specialization

1. Takes place when factors of production perform only tasks they can do better or more efficiently than others. 2. Division of labor makes specialization possible.

Economic Interdependence

1. The USA rely on others, and others rely on us to provide most of the goods and services we consume. 2. As a result, events in one part of the world often have a dramatic impact elsewhere

Wealth

1. The accumulation of products that are tangible, scare, useful, and transferable from one person to another. 2. Nation's wealth is comprised of all tangible items, such as natural resources, factories, stores, houses, motels, etc. 3. Services are not counted as wealth because they are intangible. 4. The wealth that an economy generates is made possible by the circular flow of economic activity.

Gross Domestic Product (GDP) (Description)

1. The dollar value of all final goods, services, and structures produced within a country's borders in a 12-month period. 2. GDP is the most comprehensive measure of a country's total output and a key measure of the nation's economic health. 3. Economics also describes job,s prices, trade, taxes and government spending. 4. Description allows us to know what the world looks like.

Productivity

1. The most important factor contributing to economic growth. 2. Measure of the amount of goods and services produced with a given amount of resources in a specific period of time. 3. Productivity goes up whenever more can be produced with the same amount of resources.

Standard of living

1. The quality of life based on the ownership of the necessities and luxuries that make life easier.

Human Capital

1. The sum of people's skills, abilities, health, knowledge, and motivation. 2. The government can invest in human capital would include providing education and health care. Businesses can invest in training and other programs that improve skills.

Good

1. Useful, tangible item. (ex: books, cars, etc.)

Prediction

1. We can help predict what may happen in the future, including the most likely effects of different actions.

Three Basic Questions

1. What to produce? 2. How to produce? 3. For whom to produce?

Service

1. Work that is preformed for someone. (ex: haircuts, home repairs, concerts, work of doctors, lawyers, teachers, etc.) 2. A good is something that is tangible, while a service is not.

Economics

Is the study of how people try to satisfy seemingly unlimited and competing wants through the careful use of relatively scarce resources Economics is a social science because it deals with the behavior of people as they deal with this basic issue.

Labor

People with all their efforts, abilities, and skills. Includes all people except a unique group of individuals called entrepreneurs, whom we single out because of their special role in the economy. Labor is the third factor of production.

Land

"gifts of nature", or natural resources not created by people. Land includes deserts, fertile fields, forests, mineral deposits, livestock, sunshine, and climate. Land is the first factor of production.