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Economics Test Chapter 1-3

Terms

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thinking at the margin
deciding whether to do or use one additional unit of some resource
profit motive
the force that encourages people and organizations to improve their material well-being
entrepreneur
ambitious leader who combines land, labor, and capital to create and market new goods and services
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
factors of production
land, labor, and capital; the three groups of resources that are used to make all goods and services
opportunity cost
the most desirable alternative given up as the result of a decision
macroeconomics
the study of the behavior and decision making of entire economics
centrally planned economy
economis system in which the central government makes all the decisions
continuum
a range with no clear divisions
want
an item that we desire but that is not essential to survival
command economy
economis system in which central authority is in command of the economy; a centrally planned economy
authoritarian
requiring strict obedience to an authority, such as a dictator
self-interest
one's own personal gain
collective
large farm leased from the state to groups of peasant farmers
services
actions or activities that one person performs for another
production possibilities frontier
the line on the production possibilities graph that shows the maximum possible output
underutilization
using fewer resources than an economy is capable of using
factor payments
the income people receive for supplying factors of production, such as, land, labor, and capital
microeconomics
the study of the economic behavior and decision making of small units , such as individuals , families, and businisses
traditional economy
economic system that relis on habit, custom, or ritual to decide questions of production and consumption of goods and services
private property
property owned by individuals or companies, not by the government or the people as a whole
market
an arrangement that allows buyers and sellers to exchange things
technology
the process used to produce goods and services
work ethic
commitment to the value of work and purposeful activity
poverty threshold
an income level below that which is needed to support families or households
standard of living
level of economic prosperity
gross domestic product (GDP)
the total value of all final goods and services produced in particular economy
shortage
a situation in which a good or service is unavailable
invisible hand
term economists use to describe the self-regulating nature of the marketplace
land
natural resources that are used to make goods and services
consumer sovereignity
the power of consumers to decide what gets produced
human capital
the skills and knowledge gained by a worker through education and experience
socialism
a social and political philosophy based on the belief that democraticmeans should be used to evenly distribute wealth throughout society
free contract
the concept that people may decide what agreements they want to enter in
public interests
concerns of the public as a whole
profit
the financial gain made in a transaction
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
production possibilities curve
a graph that shows alternative ways to use an economy's resources
privatize
to sell state-run firms to individuals
physical capital
all human-made goods that are used to produce other goods and services; tools and buildings
heavy industry
industry that requires a large capital investment that produces items used in other industries
private sector
the part of the economy that involves the transactions of individuals and businesses
market economy
economic system in which decisions on production and consumption of goods and services are based on voluntary exchange markets
household
a person or group of people living in the same residence
trade-off
an alternative that we sacrifice when we make a decision
economics
the study of how people seek to satisfy their needs and wants by making choices
patriotism
the love of one's country; the passion that inspires a person to serve his or her country
capital
any human made resource that is used to create other goods and services
goods
physical objects such as clothes or shoes
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
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
mixed economy
market-based economic system with limited government involvement
firm
an organization that uses resources to produce a product, which it then sells
product market
the market in which households purchase the goods and services that firms produce
public sector
the part of the economy that involves the transactions of the government
open opportunity
the concept that everyone can compete in the market place
incentive
an expectation that encourages people to behave in a certain way
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
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
efficiency
using resources in such a way as to maximize the production of goods and services
cash transfers
direct payments of money to eligible poor people
public good
a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers
cost
to an economist the alternative that is given up because of a decision
interest groups
a private organization that tries to persuade the public officals to act or vote according to group members' interests
in-kind benefits
goods and services provided for free or at greatly reduced prices
welfare
government aid to the poor
factor market
market in whick firms purchase the factors of production from households
need
something like air, food, or shelter that is necessary for survival
competition
the rivalry among sellers to attract customers while lowering costs
specialization
the concentration of the productive efforts of individuals and firms on a limited number of activities
scarcity
limited quantities of resources to meet unlimited wants
transition
period of change in which the economy moves away from a centrally planned toward a market-based economy
business cycle
a period of macroeconomics expansion followed by a period of contraction
legal equality
the concept of giving everyone the same legal rights
public disclosure laws
laws requiring companies to provide full information about their prodicts
economic system
the method used by a society to produce and distribute goods and services
competition
the struggle among producers for the dollars of consumers
labor
the effort that people devote to a task for which they are paid
market failure
a situation in which the market does not distribute resources efficiently
safety net
government programs that protect people experiencing unfavorable economic conditions
private property rights
the concept that people have the right and privilege to control their possessions as they wish
laissez faire
the doctrine that states that government generally should not intervene in the marketplace

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