Economics Chapter 1-2 Test Flashcards

Key Economic Concepts

• Capital Goods: Manufactured means of production essential for creating other goods; includes factories, machinery, tools, and buildings.
• Wealth: Represents an abundance of valuable possessions or money, indicating material prosperity.
• Economics: Study of production, consumption, and transfer of wealth, analyzing a region's material prosperity.

Value and Utility

• Value: Monetary worth assigned to something, e.g., an estate valued at $45,000.
• Utility: Satisfaction derived from consuming a good or service; reflects the usefulness of products.

Cost and Choices

• Opportunity Cost: The cost of a chosen action expressed in terms of the value of the next best alternative forgone; crucial for resource allocation efficiency.
• Trade-off: The act of exchanging one benefit for another, often involving a decision where one option is relinquished for a perceived greater benefit.

Living Standards and Consumer Power

• Standard of Living: Level of material comfort based on available goods, services, and luxuries, reflecting the welfare of individuals or communities.
• Consumer Sovereignty: Concept that consumers dictate the types of goods produced, emphasizing the role of consumer choice in the economy.

Types of Goods and Profit

• Consumer Goods: Products purchased and used by customers for personal use, distinguishing them from goods used in production.
• Profit: Return received on business operations after all expenses; indicates the financial success and growth rate of an enterprise.

Economic Motivation and Regulation

• Profit Motive: The desire to earn monetary gain drives business activities; significant for determining expense deductibility in transactions.
• Inflation: Increase in general price levels over time, reducing the purchasing power of currency and affecting economic stability.

Market Dynamics

• Free Enterprise: Economic system where private businesses operate with minimal government intervention, promoting competition and profit.
• Circular Flow of Activity: Model illustrating the continuous movement of income between producers and consumers, highlighting economic interdependence.