Economics terms
54 flashcards · Economics · by Ami Morrison
Economics
The study of how people satisfy unlimited wants with limited resources the science of choice
Land
Natural resources
Microeconomics
Small scale, individual firms, households, and industries
Labor
All people and their work to produce goods/services
Macroeconomics
Large scale, entire economy, government legislation, international trade
Capital
Man-made goods required for production
Opportunity cost
The value of the best foregone alternative
Entrepreneur
Someone who combines land, labor, and capital to create a business An enterprising individual who builds capital through risk and initiative Driving force of the economy
Cost-benefit analysis
Looking at the costs and benefits of a choice and deciding if the benefits outweigh the costs
Monetary incentive
Money outcomes from a decision
Scarcity
The lack of resources
Non-monetary incentive
Positive outcomes from a decision (without money)
Utility
Usefulness
Market
Exchanges between a buyer and seller
Marginal benefit
The benefit received from consuming one more unit of a product
Product market
A business exchanging finished products for consumers’ money
Factor market
Inputs are bought and sold
Wealth
The value of all goods, services, and resources owned
Consumer
Someone who buys goods from businesses
Four factors of production
Private Property Rights Open & Unrestricted Competition Price System Entrepreneurship
Producer
Makers of goods and services
Three basic economic questions
What goods and services will be produced? How will they be produced? For whom will they be produced?
Free enterprise
Capitalism
Private property
Products and resources owned by individuals and businesses
Pure competition
More competition = more choices for consumers
The price system
Consumers can choose what price to pay for products
Efficiency
Producing as much as possible while reducing costs and distributing resources appropriately
Equity
Fair distribution of income and wealth
Economic growth
Progress and development that results in increases of production
Stability
Eliminating large fluctuations of inflation rates, employment rates, and business cycles
Full employment
All available factors of production are employed in production
Traditional economy
Economy based on past customs
Command economy
Planned/communist economy
Market economy
Capitalist economy
Mixed-market economy
Combines elements of market and command economies
Socialism
Equal ownership of property, goods, and wealth
Capitalism
An economic philosophy prioritizing economic freedom and supply & demand
Communism
The purest form of socialism
Adam Smith
18th century writer, wrote An Inquiry into the Nature and Causes of Wealth of Nations
Invisible hand theory
Everyone is free to pursue self-interest
Laissez-faire
Hands-off economy
Karl Marx
19th century philosopher, wrote Das Kapital
Das Kapital
Book written about Karl Marx about the transition from capitalism to socialism
Theory of Supply and Demand
Law of Supply
All other things remaining the same, higher prices = higher quantities supplied quantity demanded correlates directly with price
Law of Demand
All other things remaining the same, higher prices = smaller quantities demanded quantity demanded varies inversely with price
Price
The amount of goods or money that must be given up in exchange for something
Money Price
The amount of money it will take to purchase something
Relative Price
Price measured in terms of other goods
Change in Quantity Demanded
Caused by price changes
Normal Goods
Goods that are bought when customers make enough money
Equilibrium
A state of balance between opposing forces
Market Clearing Price
Equilibrium
Shift or Change in Demand