Economics Notes
Division of Labor
Assigning specific tasks to different workers
Comparative Advantage
Ability to produce a good or service at a lower opportunity cost
Absolute Advantage
Ability to produce more of a good or service than others
Role of Government in Command Economy
Central planning, regulation, and control of resources
Traditional Economy
Economic system based on customs and traditions
Market Economy
Economic system based on supply and demand
Command Economy
Economic system where the government controls production and distribution
Communism
Economic system with common ownership and no private property
Mixed Economy
Economic system with elements of both command and market economies
Free Enterprise
Economic system with private ownership and competition
Capitalism
Economic system with private ownership and free markets
Socialism
Economic system with public ownership and centralized planning
Resources
Factors of production: land, labor, capital, entrepreneurship
Circular Flow Model
Flow of goods, services, and money in an economy
Specialization
Focusing on producing a limited range of goods or services
Capital Goods
Goods used to produce other goods and services
Production Possibilities Frontier (PPF)
Graph showing the maximum possible production of two goods
Scarcity
Limited resources, unlimited wants
Capital (Financial)
Money or assets used in investment
Private Property
Ownership of resources by individuals or businesses
Capital (Real)
Physical assets used in production
6 Characteristics of a Free Market Economy
Private property, voluntary exchange, competition, profit motive, consumer sovereignty, limited government intervention
Consumer Goods
Products purchased for personal use
Role of Government in Market Economy
Protection of property rights, enforcement of contracts, and provision of public goods
Incentives
Rewards or penalties that influence behavior
Competition
Rivalry among sellers to attract customers
Opportunity Cost
The value of the next best alternative foregone
Voluntary Exchange
Trade that is mutually beneficial and agreed upon by both parties
Privatization
Transfer of government-owned assets to private ownership
3 Basic Economic Decisions
What to produce, how to produce, and for whom to produce
