Economics Test Chapter 1-3

need

something like air, food, or shelter that is necessary for survival

want

an item that we desire but that is not essential to survival

economics

the study of how people seek to satisfy their needs and wants by making choices

goods

physical objects such as clothes or shoes

services

actions or activities that one person performs for another

scarcity

limited quantities of resources to meet unlimited wants

shortage

a situation in which a good or service is unavailable

factors of production

land, labor, and capital; the three groups of resources that are used to make all goods and services

land

natural resources that are used to make goods and services

labor

the effort that people devote to a task for which they are paid

capital

any human made resource that is used to create other goods and services

physical capital

all human-made goods that are used to produce other goods and services; tools and buildings

human capital

the skills and knowledge gained by a worker through education and experience

entrepreneur

ambitious leader who combines land, labor, and capital to create and market new goods and services

trade-off

an alternative that we sacrifice when we make a decision

guns or butter

a phras that refers to the trade-off that nations face when choosing whether to produce more or less military or consumers goods

opportunity cost

the most desirable alternative given up as the result of a decision

thinking at the margin

deciding whether to do or use one additional unit of some resource

production possibilities curve

a graph that shows alternative ways to use an economy's resources

production possibilities frontier

the line on the production possibilities graph that shows the maximum possible output

efficiency

using resources in such a way as to maximize the production of goods and services

underutilization

using fewer resources than an economy is capable of using

cost

to an economist the alternative that is given up because of a decision

law of increasing costs

law states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases

economic system

the method used by a society to produce and distribute goods and services

factor payments

the income people receive for supplying factors of production, such as, land, labor, and capital

patriotism

the love of one's country; the passion that inspires a person to serve his or her country

safety net

government programs that protect people experiencing unfavorable economic conditions

standard of living

level of economic prosperity

traditional economy

economic system that relis on habit, custom, or ritual to decide questions of production and consumption of goods and services

market economy

economic system in which decisions on production and consumption of goods and services are based on voluntary exchange markets

centrally planned economy

economis system in which the central government makes all the decisions

command economy

economis system in which central authority is in command of the economy; a centrally planned economy

mixed economy

market-based economic system with limited government involvement

market

an arrangement that allows buyers and sellers to exchange things

specialization

the concentration of the productive efforts of individuals and firms on a limited number of activities

household

a person or group of people living in the same residence

firm

an organization that uses resources to produce a product, which it then sells

factor market

market in whick firms purchase the factors of production from households

profit

the financial gain made in a transaction

product market

the market in which households purchase the goods and services that firms produce

self-interest

one's own personal gain

incentive

an expectation that encourages people to behave in a certain way

competition

the struggle among producers for the dollars of consumers

invisible hand

term economists use to describe the self-regulating nature of the marketplace

consumer sovereignity

the power of consumers to decide what gets produced

socialism

a social and political philosophy based on the belief that democraticmeans should be used to evenly distribute wealth throughout society

communism

a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central gov't

authoritarian

requiring strict obedience to an authority, such as a dictator

collective

large farm leased from the state to groups of peasant farmers

heavy industry

industry that requires a large capital investment that produces items used in other industries

laissez faire

the doctrine that states that government generally should not intervene in the marketplace

private property

property owned by individuals or companies, not by the government or the people as a whole

free enterprise

an economic system characterized by private or corporate ownership of capital goods; investments that are determined by private decision rather than by state control; and determined in a free market

continuum

a range with no clear divisions

transition

period of change in which the economy moves away from a centrally planned toward a market-based economy

privatize

to sell state-run firms to individuals

profit motive

the force that encourages people and organizations to improve their material well-being

open opportunity

the concept that everyone can compete in the market place

legal equality

the concept of giving everyone the same legal rights

private property rights

the concept that people have the right and privilege to control their possessions as they wish

free contract

the concept that people may decide what agreements they want to enter in

voluntary exchange

the concept that people may decide what and when they want to buy and sell

competition

the rivalry among sellers to attract customers while lowering costs

interest groups

a private organization that tries to persuade the public officals to act or vote according to group members' interests

public disclosure laws

laws requiring companies to provide full information about their prodicts

public interests

concerns of the public as a whole

macroeconomics

the study of the behavior and decision making of entire economics

microeconomics

the study of the economic behavior and decision making of small units , such as individuals , families, and businisses

gross domestic product (GDP)

the total value of all final goods and services produced in particular economy

business cycle

a period of macroeconomics expansion followed by a period of contraction

work ethic

commitment to the value of work and purposeful activity

technology

the process used to produce goods and services

public good

a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers

public sector

the part of the economy that involves the transactions of the government

private sector

the part of the economy that involves the transactions of individuals and businesses

free rider

someone who would not choose to pay for a certain good or service, but who would get the benefits of it anyway if it were provided as a public good

market failure

a situation in which the market does not distribute resources efficiently

externality

an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

poverty threshold

an income level below that which is needed to support families or households

welfare

government aid to the poor

cash transfers

direct payments of money to eligible poor people

in-kind benefits

goods and services provided for free or at greatly reduced prices