Economics 1
Terms
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- Full Employment
- best to have an unemployment level of not more than 4 or 5%- considered full employment (referred to as labor); political pressure- don't want people getting worked up- show helping solve problems to get re-elected
- Whome?
- Who benefits from what is produced? (more valuable if you control more resources; entrepreneurs)
- Grwoth
- increase in the production capacity of the economy (overcoming previous levels of scarcity)
- Capital
- any resource used in the production of a good or service
- Factors of Production
- Land, Labor, Capital, Entrepreneur
- more input
- means more production (not necessarily more efficient- product produced at same rate (increase in production NOT productivity)
- economics
- study how to best overcome existing levels of scarcity
- if country produces more consumer goods
- higher standards of living (better here and now)
- scarcity
- unlimited wants for limited resources
- Market Economy (capitalism, free market)
- competition btw buyers/sellers- determines prices; private ownership; no gov't influence; self-interest; voluntary exchange (freedom of choice)
- inside Production Possibility Frontier
- underemployment of resources, inefficient
- On Production Possibility Frontier line
- full employment of resources
- Inocme Effect
- the change in quantity demand that is caused by the change in purchasing power due to price changes
- increase in productivity/ decrease in production
- can decrease input, but if rate of production increases with each additional input- increase in productivity
- if country produces more capital goods
- greater earning potential- frontier shifts based on capital goods- helps overcome previous levels of scarcity
- outside Production Possibility Frontier
- scarcity
- Ways to increase productivity
- investment in capital equipment, investment in human capital, research and development (increase in technology- increase efficiency), specialization
- money
- a means to obtain resources efficiently; move sresources around w/out direct trade
- Socioeconomic Goals
- environmental protection, financial security, economic equity, economic justice, economic freedom
- capital goods
- item used to produce something else
- needs
- basic requirements for survival (wants- anything else)
- What?
- What mix of goods and services should a country produce?
- entrepreneur
- risk-takers, money comes out of their pocket in search for profit; bring the factors of production together
- consumer goods
- any item intended as final use- no more potential to produce anything
- economist
- best way to use resources to get closest to employment
- Utility
- usefullness and satisfaction
- How?
- How will a country use its resources to produce goods and services? (use technology and capital equipment- more efficient/capital intensive)
- Opportunity Cost
- the next best sacrificed alternative (always has to be on the losing side)- tradeoffs
- Efficiency = Productivity
- getting the largest possible amount of output per unit of input helps to overcome scarcity
- Labor
- any human effort that is expended
- Technological advances
- cause of shift outwards of Production Possibility Frontier into previous levels of scarcity (overcoming past levels of scarcity)
- durable goods
- any item that has a life expectancy of more than 3 years (vs. nondurable goods)
- increasing opportunity cost
- when resources are not directly interchangeable (more common- concave down)
- complementary goods
- one helps you in achieving another (ex: efficiency leads to growth)
- Command Economy (centrally controlled economy)
- gov't sets prices; gov't owns factors of production; complete gov't interference; for public good- no self-interest; ability to make rapid changes
- Law of Demand
- as prices increase, demand decreases, as prices decrease, demand increases
- Land
- any natural resource
- Traditional Economy
- no formal markets; barter system; jobs: father-son
- conflicting goods
- one prevents you from achieving another (ex: Growth puts strain on resources so prices climb- affects price stability)