Economics Chapter 1-2 Flashcards

Questions and Answers

What is the social science that studies the production, distribution, and consumption of goods and services?

Economics

What is a condition that exists when there are not enough resources to satisfy all of the competing uses?

Scarcity

What are the four different categories economists classify resources?

Labor, land, capital, entrepreneurship

What term describes the physical and mental effort people use to produce goods and services?

Labor Signup and view all the answers

What includes all natural resources such as timber, water, oil, minerals, and plants?

Land Signup and view all the answers

What term refers to goods or money that is used to invest in order to make income?

Capital Signup and view all the answers

What do we call someone who undertakes an activity or enterprise?

Entrepreneurship Signup and view all the answers

What do we use to produce goods and services; also called factors of production?

Resource Signup and view all the answers

What is the study of how individuals, households, and businesses make choices about the production, allocation, and consumption of scarce resources?

Microeconomics Signup and view all the answers

What is the study of the economy as a whole called?

Macroeconomics Signup and view all the answers

What is the value of the best alternative given up known as?

Opportunity cost Signup and view all the answers

What do we call it when you give up something in order to gain something else?

Trade-off Signup and view all the answers

What are amounts of money spent on the inputs used in the production process called?

Direct costs Signup and view all the answers

What are costs that affect an entire operation, rather than a specific product or service called?

Indirect costs Signup and view all the answers

What is an action that results in an outcome that was not intended?

Unintended consequence Signup and view all the answers

What do we call it when an action has unexpected benefits?

Positive unintended consequence Signup and view all the answers

What term describes an action that causes unexpected harm or has unexpected costs?

Negative unintended consequence Signup and view all the answers

Who wrote the Wealth of Nations in 1776?

Adam Smith Signup and view all the answers

What did Adam Smith argue?

The pursuit of self-interest unintentionally promotes the well-being of society Signup and view all the answers

What involves doing a little more of something or doing a little less of something?

Marginal decisions Signup and view all the answers

What is the additional benefit or change in total benefit resulting from an action called?

Marginal benefit Signup and view all the answers

What is the cost of each additional unit of a good?

Marginal cost Signup and view all the answers

What is the total cost of production divided by the number of units produced?

Average cost Signup and view all the answers

What are the three basic economic questions?

<ol> <li>What should I produce? 2) How much should I produce? 3) Who will buy the goods or services?</li> </ol> Signup and view all the answers

What is an economy in which the kind of work people do and the goods people produce is followed by tradition and custom called?

Traditional economy Signup and view all the answers

What is an economy where the government makes all or most of the economic decisions?

Command economy Signup and view all the answers

What is an economy in which consumers decide what will be produced by purchasing what they prefer?

Market economy Signup and view all the answers

What is an economy in which several different models coexist, such as a market economy and a command economy?

Mixed economy Signup and view all the answers

What is an overall increase in the price level?

Inflation Signup and view all the answers

What is a thing or idea that is used to encourage or discourage people from making certain decisions?

Incentive Signup and view all the answers

What is the concept that individuals are allowed to own property and use it in any legal way they see fit?

Private ownership Signup and view all the answers

What is the creation or manufacture of goods and services for sale with exchange value called?

Production Signup and view all the answers

What is the step in the production process that brings the goods and services from those who make them to those who use them?

Distribution Signup and view all the answers

What is the act of acquiring goods or services for direct use called?

Consumption Signup and view all the answers

Who is considered the 'father of modern economics'?

Adam Smith Signup and view all the answers

Where have Adam Smith's concepts been written?

The constitution Signup and view all the answers

What is a metaphor used by philosopher and economist Adam Smith that describes how people acting in their self-interest can lead to socially desirable outcomes?

Invisible hand Signup and view all the answers

What are the productive resources used to produce goods and services called?

Factors of production Signup and view all the answers

What are the man-made goods, such as tools, which are used to produce other goods called?

Physical capital Signup and view all the answers

What refers to the skills, abilities, and ideas learned over time in preparation for a job?

Human capital Signup and view all the answers

Study Notes

Introduction to Economics

Economics is the social science that examines the production, distribution, and consumption of goods and services.
It studies how individuals, businesses, and governments make choices about resource allocation.

Key Economic Concepts

Scarcity: A condition where resources are insufficient to meet all competing needs.
Resources: Classified into four categories: labor, land, capital, and entrepreneurship.

Types of Resources

Labor: The physical and mental efforts used in the production of goods and services.
Land: Natural resources such as timber, water, minerals, and other gifts from the earth.
Capital: Goods used to produce other goods; includes tools, machinery, and infrastructure.
Entrepreneurship: The initiative taken by individuals to undertake business activities.

Economic Branches

Microeconomics: Focuses on individual and business choices regarding production and resource allocation.
Macroeconomics: Studies the economy as a whole, including national income and overall economic growth.

Decision-Making in Economics

Opportunity Cost: Value of the best alternative forgone when making a decision.
Trade-off: Sacrificing one thing to gain another, emphasizing the need for choices.
Marginal Decisions: Involves making incremental changes to increase or decrease production or consumption.

Costs of Production

Direct Costs: Expenses directly tied to the production process.
Indirect Costs: Expenses that affect the entire operation rather than specific products.
Marginal Cost: The cost incurred by producing one more unit of a good.
Average Cost: Total production costs divided by the number of units produced.

Basic Economic Questions

The three fundamental questions an economy must address:
- What should be produced?
- How much should be produced?
- Who will purchase the goods or services?

Economic Systems

Traditional Economy: Economic decisions based on customs and traditions.
Command Economy: The government makes most economic decisions.
Market Economy: Decisions driven by consumer preferences and supply-demand dynamics.
Mixed Economy: Combines elements of market and command economies.

Economic Indicators

Inflation: A sustained increase in the overall price level of goods and services.
Incentives: Factors that motivate individuals to make certain decisions.

Economic Foundations

Private Ownership: The right of individuals to own property and use it legally as they deem fit.
Production: The process of creating goods and services with exchange value.
Distribution: Sharing goods and services from producers to consumers.
Consumption: Acquiring goods for direct use rather than for resale.

Influential Economists

Adam Smith: Known as the "father of modern economics," authored "Wealth of Nations" in 1776.
Invisible Hand: A concept by Adam Smith suggesting that self-interest leads individuals to contribute to overall societal well-being.

Capital Forms

Physical Capital: Man-made goods used in the production of other goods.
Human Capital: Skills and knowledge acquired by individuals to enhance their labor effectiveness.

Conclusion

Understanding these key concepts and terms enhances comprehension of basic economic principles and the functioning of economies on a micro and macro level.

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Description

Test your understanding of the foundational concepts of economics with these flashcards. Covering essential definitions such as scarcity and the classification of resources, this quiz is perfect for students beginning their journey in economics. Review key terms to enhance your economic literacy.