economics

how society provides for the unlimited wants of its people with a limited amount of resources

scarcity

when human wants for goods, services, and resources exceed what is available

microeconomics

the study of how people make decisions and how those decisions affect others in the economy

macroeconomics

the study of the economy as a whole; the interactions between its various parts

division of labor

divide production into a number of tasks instead of one person doing it all

economic system

organizational structure for addressing the three economic questions (what to produce, how to produce it, and for whom will it be produced)

traditional economy

decisions about resources made by habit, custom, superstition, or religious tradition

command economy

central planners make decisions about what, how, for whom

market economy

key economic decisions made by business owners

circular flow diagram (draw & label)

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economies of scale

as more is produced, the average cost of producing each individual unit declines

opportunity cost

indicates what one must give up to obtain what he or she desires

production possibilities frontier

looks at the trade-offs that an economy faces when producing two goods

law of increasing opportunity costs

more of one good you produce, the more and more of another you have to give up

4 factors of production

land, labor, capital, and entrepreneurial ability

human capital

skills and knowledge gained by a worker through education and experience

physical capital

human made objects used to create other goods and services

give 3 reasons that division of labor increases output

specialization, saves time, economies of scale

what is the invisible hand? how does it relate to the "free market"?

it's the guide to a free market; no government intervention

describe how consumers interact in both the product and factor markets on the circular flow

they gain money from the factor market and spend money in the product market

give an incentive, advantage, and disadvantage for one of the 3 economic systems

market economy: profit motive, higher living standards, equity