Economics Unit 1

What do PPFs tell us about production?

They tell us what amount of each good could be produced when all resources are being used.

Describe how every decision involves trade-offs.

A decision is made between one or more options. A trade-off is all alternatives given up when choosing one option. The other other alternatives in that decision are the trade-offs. Therefore, every decision involves trade-offs.

What is the difference between a need and a want?

A need is something that is necessary and required. A want is something that is not needed but desired.

What is the difference between absolute and comparative advantage? How are these calculated? Law of Comparative Advantage?

Absolute Advantage means you can produce a good using less resources. Comparative Advantage means you can produce a good at smaller opportunity cost. Calculated by looking at the opportunity cost. Law of comparative advantage states trade between the two can be beneficial to both if each specializes in the production of a good with lower relative opportunity cost.

Define Entrepreneurship

Ambitious entrepreneurs starting a business or organization to create goods or services.

Why are assumptions made with PPFs? What are they?

Assumptions are made in order to compare the production successfully. The assumptions are an economy's resources are fixed in both quantity and quality, the state of technology is constant, That 2 types of goods are produced, and that the resources are completely mobile between the production of both goods.

Identify examples of public goods.

Clean air, national defense, the judiciary, lighthouses, street lights, and a fireworks show.

What is economics and why is it important?

Economics is the study of how people seek to satisfy their needs and wants by making choices. It is important because it allows people and businesses to make smart decisions in the economy.

What are some benefits of being in a free enterprise economy?

Fast economic and technological growth. Great efficiency. Freedom of choice.

Describe the goals of the U.S. Economy and be able to provide examples of each.

Free enterprise economy. The government intervenes to keep order, provide vital services, promote general welfare. Ex. Stopping monopolies, providing healthcare, welfare.

What are the basic economic choices facing all people?

How to spend their money, how to invest, how to save their money.

What is a production possibilities frontier? How do you visually represent one?

It is a line that shows combinations of the production of the two axes of the graph. Each axis is a different product. Any point on the graph represents all resources being used. It is represent by a graph, each axis representing a different product, and a line representing the combinations of possible production when using all resources.

What is a market failure and why does it occur?

It is the inability of a market to achieve an efficient outcome. Happens due to an imbalance of information between parties.

Why are most economies mixed?

It offers the most economic growth. It allows choices to be made upon observations and demand, yet is monitored by the government.

Identify and give examples of the factors of production.

Land, labor, capital, and entrepreneurship. Ex. Oil, Workers, Conveyor belts, Organization.

Describe the basic economic systems.

Market economy- decisions made by individuals based on trade. Centrally planned economy- central government controls choices in economy. Traditional economy- based on culture, tradition, and agriculture. Mixed economy- both government and market economy are involved.

What does opportunity cost mean? Why are they important to economists?

Opportunity cost is the most desirable alternative given up as the result of a decision. It is important because it creates opportunities and variation in the economy.

What is the economic problem of free riders?

People are receiving benefits without paying the consequences for that benefit.

Example of positive and negative externality.

Positive- a neighbor who has a nice garden and lawn. Negative- pollution.

What does scarcity mean? Why is it important to economics and our lives?

Scarcity is a limited quantity of resources to meet unlimited wants. At one point a limit is reached and economics must be used to solve the unfulfilled wants.

Describe how the circular flow mode works in detail.

The circular flow model works by showing how money, land, labor, and capital are are transferred through an economy between households, firms, and government.

What does thinking at the margin mean? Can you provide an example?

Thinking at the margin is deciding how much more or less to do. For example, if an airline has empty seats on a plane, they have to decide how to much sell the seats for to fill the seats without losing too much money and filling all the seats.

Summarize the reasons why a government intervenes in a free enterprise system.

To uphold the law, maintain functioning economy, ensure honest competition, and avoid large monopolies.