natural resources, capital, labor, entrepreneurs
What are the four factors of production?
goods
tangible products that we use to satisfy our wants and needs
services
work performed for someone else
natural resources
gifts of nature that make production possible
labor
human effort directed towards producing goods and services
capital goods
tools, machinery, and buildings used to make other products
entrepreneurs
individuals who start new businesses, introduce new products, and improve management techniques
Gross Domestic Product (GDP)
the total value, in dollars, of all the final goods and services produced in a country during a single year (does not count secondhand sales)
GDP
____________________ is an important measure of standard of living
standard of living
the quality of life based on the possession of necessities and luxuries that make life easier
quantity
GDP measures ___________.
quality
GDP does not measure ____________.
factor markets
markets where prodcutive resources are bought and sold
factor markets
markets where workers earn wages, salaries, and tips in exchange for their labor
product markets
markets where producers offer goods and services for sale
standard of living
Economic growth is important because it increases people's _____________ ___ __________
productivity
a measure of the amount of output produced by a given amount of inputs in a specific period of time
output, inputs
productivity goes up whenever more _______ can be produced with the same amount of ________ in the same amount of time
output, input
Productivity goes up when the same _______ can be produced with less _______
specialization
when people, businesses, regions, and/or nations concentrate on goods and services that they can produce better than anyone else
productivity
Specialization is important because it improves ____________
division of labor
the breaking down of a job into separate, smaller tasks, which are performed by different workers
division of labor
a form of specialization that improves productivity
human capital
productivity tends to increase when businesses invest in ________ __________.
human capital
the sum of the skills, abilities, and motivation of people
economic interdependence
a reliance on others, as they rely on you, to provide goods and services to be consumed
capitalism
an economic system in which private citizens own and use the factors of production in order to seek a profit
free enterprise
economic system in which individuals and businesses are allowed to compete for a profit with a minimum of government interference
consumer sovereignty
the role of consumer as the ruler of the market, determining what products will be produced
markets, economic freedom, private property rights, competition, profit motive, voluntary exchange
What are the six features of capitalism?
private property rights
the freedom to own and use our own property as we choose as long as we do not interfere with the rights of others
competition
the struggle that goes on between buyers and sellers to get the best products at the lowest prices
keeps the cost of production low and the quality of the goods higher than they would be otherwise
Why is competition important?
profit
the amount of money left over after all the costs of production have been paid
profit motive
the driving force that encourages individuals and organizations to improve their material well-being
voluntary exchange
the act of buyers and sellers freely and willingly engaging in market transactions
competition makes for efficient production, higher-quality products and more satisfied customers
What is the result of competition between sellers?
the incentive to work, save, and invest
What incentives does private property give people?
work, save, invest; because we know we can keep any gains that we earn
Why does private property give people the incentive to ______, _______, and _________?
no; because economic freedom allows the entrepreneur to make their own decisions but also holds them responsible for their decisions
If an entrepreneur's business fails, will the government help him or her recover the financial losses? Why or why not?
As long as the transaction involves a voluntary exchange, both you and the seller benefit.
Who benefits when you buy something-you or the seller?
the idea that people could work for economic gain, the idea that government should have a very limited role in the economy
What two important concepts laid the foundation for the market system that is at the heart of capitalism?
individuals seeking profit ended up benefiting society as a whole
What did Smith believe?
laissez-faire
to let alone
laissez-faire economics
government's role in economy is strictly limited to those few actions needed to ensure free competition in the marketplace
right to a safe product, right to be informed, right to choose, right to be heard, right to redress
What are the five major rights on the consumer bill of rights?
consumerism
a movement to educate buyers about the purchases they make and to demand better and safer products from manufacturers
warranty
promise made by a manufacturer or seller to repair or replace a product within a certain time period if it is faulty
ethical behavior
the responsibility of consumers to respect the rights of producers and sellers
disposable income
the money income a person has left after all the taxes on it have been paid
discretionary income
money left over after paying for these necessities that can be used for satisfying wants
saving
to set aside a portion of income for a period of time so that it can be used later
interest
the payment people receive when they lend money or allow someone else to use their money