-Unit 1 Vocabulary
Chapter 1 Introduction to Economics
Needs
A need is something that’s necessary for survival.
Example: Air
Wants
A want is something that people desire but isn’t necessary for survival.
Example: Money
Goods
Goods are physical objects.
Example: clothes
Services
Services are actions or activities that one person performs for another.
Example: Getting nails done
Scarcity
Scarcity is when there are limited quantities of resources to meet unlimited wants.
Example: When someone wants to buy one thousand basketballs but the company doesn’t have enough resources to make them.
Shortage
A situation in which a good or service is unavailable.
Example: Not enough tomatoes because farming was bad one season.
Factors of production – land, labor and capital
The three groups of resources that are used to make all goods and services.
Example: land: a farm, labor: farmers, capital: the tomatoes
Physical Capital
All human-made goods that are used to produce other goods and services
Example: tools and buildings
Human Capital
The skills and knowledge gained by a worker through education and experience
Example: a college degree
Entrepreneurship
Ambitious leader who combines land, labor, and capital to create a market new goods and services
Examples: Bill Gates
Opportunity Cost
The most desirable alternative given up as the result of a decision
Example: Giving up finishing college to get a job right away and make money
Trade-offs
An alternative that we sacrifice when we make a decision
Example: Trading good grades for having a job
Guns or butter?
A phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods
Example: In world war two a lot of factories focused on goods necessary to war rather than designer shoes and such
Marginal thinking, marginal cost, marginal benefit
Deciding whether to do or use one additional unit of some resource
Example: Either wake up early to study or sleep in late and not study at all
Production Possibilities Curve
A graph that shows alternative ways to use an economy’s resources
Example: a graph of a curve between watermelon and shoes produced
Production Possibilities Frontier
The line on a production possibilities graph that shows the maximum possible output
Example: The line connecting the dots on the watermelon vs. shoes graph that shows the most possible output of each item
Efficiency
Using resources in such a way as to maximize the production of goods and services
Example: making all workers at a factory meet a specific amount of goods produced
Underutilization
Using fewer resources that an economy is capable of using
Example: All the workers at a factory not making all of the shoes they have the supplies for
Law of increasing costs
Law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases
Example: as production switches from shoes to watermelons, more and more resources are necessary to produce watermelons
Law of diminishing marginal returns
If one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output.
Example: There comes a time where you can’t make that many watermelons than you were before because you would get to infinite
Should government provide safety regulations at any cost?
Yes, people’s lives are more important than the amount of goods being produced.
Chapter 2 Economic Systems
Economic system
The method used by a society to produce and distribute goods and services
Example: Capitalism is when a society distributes goods and services free of the government
Three key economic questions
1. What will be produced and what quantity?
2. How will it be produced?
3. For who?
Factor payments
The income people receive for supplying factors of production, such as land, labor, or capital
Example: Landowners receive rent
Economic Goals & Values – Efficiency,
Societies try and maximize what they can get for the resources they have to work with
Example: a society making as much food as they can
-Freedom,
Making your own economic choices
Example: I can start any business I want
-Security & predictability,
Not being uncertain; being certain
Example: We want to know that the gas pumps will be full when we get to them
-Equity,
What constitutes a fair share of goods and services
Example: Lawyers earn more than nurses
-Growth & innovation,
Nation must grow to improve its standard for living
Example: making a cotton gin
-Other goals – environmental…
nation must prioritize its goals
Economic systems – traditional,
Economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services
Example: Some communities in Africa
-Market,
Economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets
Example: Mexico
-Command,
Economic system in which a central authority is in command of the economy; a centrally planned economy
Example: China
-Mixed economies
Market-based economic system with limited government involvement
Example: USA
Markets
An arrangement that allows buyers and sellers to exchange things
Example: Cub Foods
Specialization
The concentration of the productive efforts of individuals and firms on a limited number of activities
Example: A baker specialized in making breads, cakes, and cookies
Circular flow model
-Factor market
Market in which firms purchase the factors of production from households
Example: Getting a paycheck
-Product market
The market in which households purchase the goods and services that firms produce
Example: buying a good
-Role of households and firms
Households get money from firms and make products for them, then households give money to firms and buy products from them.
Features of Market economy – self-interest,
One’s own personal gain
Example: an entrepreneur making themself a lot of money
-Competition,
The struggle among producers for the dollars of consumers
Example: Microsoft vs. Apple
-Invisible hand,
Term economists use to describe the self-regulating nature of the marketplace
Example: Apple comes out with a tablet, all other technology companies will too
-Private property,
Citizens own privacy to the land they buy
Example: Police need a warrant to search a home
-Free enterprise
an economic system in which private business operates in competition and largely free of state control
Example: Microsoft can produce anything they want without asking the government
Advantages of the free market
Economic efficiency, economic freedom, economic growth, consumer sovereignty
Socialism
A social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society
Example: Canada
Communism
A political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government
Example: China
Authoritarian
Requiring strict obedience to an authority, such as a dictator
Example: Kim Jong Un in North Korea
Collective
Large farm leased from the state to groups of peasant farmers
Example: The Soviet Union
Heavy industry
Industry that requires a large capital investment and that produces items used in other industries
Example: Soviet factories
Laissez faire
The doctrine that states that government generally should not intervene in the marketplace
Example: the government not setting prices on goods and services
Transition economy
Period of change which an economy moves away from a centrally planned economy towards a market-based system
Example: Russia
Privatization
To sell state-run firms to individuals
Example: Russia
Role of government in the circular flow model
The government expenditures households and firms
Example: Taxing people and providing public resources
Mixed Economies continuum
A range with no clear divisions, ranges from centrally planned (North Korea) to free market (Hong Kong)
Chapter 3 American Free Enterprise
Profit motive
The force that encourages people and organizations to improve their material well-being
Example: The American economy
Open opportunity
The concept that everyone can compete in the marketplace
Example: Someone that grew up in Chicago could have as much of an advantage in the market as someone in Chanhassen
Private property rights
The concept that people have the right and privilege to control their possessions as they wish
Example: A police needing a warrant to search a home
Free contract
The concept that people may decide what agreements they want to enter into
Example: Microsoft signing a deal with a big inventor
Voluntary exchange
The concept that people may decide what and when they want to buy and sell
Example: Someone could go to best buy and buy a Microsoft or a Mac computer
Interest groups
A private organization that tries to persuade public officials to act or vote according to group members’ interests
Example: Aid for farmers
Public disclosure laws
Laws requiring companies to provide full information about their products
Example: a medicine company has to tell their customers all of the side effects of their drug
Public interest
The concerns of the public as a whole
Example: the whole public wants lower prices
Macroeconomics
The study of behavior and decision making of entire economies
Example: Studying capitalism
Microeconomics
The study of the economic behavior and decision making of small units, such as individuals, families, and businesses
Example: studying the decisions of microsoft
GDP
Gross domestic product. The total value of all final goods and services produced in a particular economy
Example: All of the goods produced by the USA
Business cycle
A period of macro-economic expansion followed by a period of contraction
Example: The stock market
Work ethic
A commitment to the value of work and purposeful activity
Example: a student’s commitment to their homework/studying
Technology
The process used to produce a good or service
Example: Using a 3D printer to create a ball
Public good
A shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers
Example: Roads
Public sector
The part of the economy that involves the transactions of the government
Example: Taxes paying a teacher’s paycheck
Private sector
The part of the economy that involves the transactions of individuals and businesses
Example: Microsoft selling a person a computer
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 public good
Example: a person who doesn’t pay their taxes but their kid goes to school
Market failure
A situation in which the market does not distribute resources efficiently
Example: Free riders
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
Example: teens being trained by one company and hired by another who benefits from their skills without having paid for them
Poverty
An income level below that which is needed to support families or households
Example: being homeless
Welfare
Government aid to the poor
Example: welfare checks to a person depending how many kids they have
Cash transfers – programs?
TANF, Social Security, Unemployment insurance, Worker’s compensation
In-kind benefits
Goods and services provided for free or at greatly reduced prices
Examples: food stamps, subsidized housing, legal aid
Chapter 1 Introduction to Economics
Needs
A need is something that’s necessary for survival.
Example: Air
Wants
A want is something that people desire but isn’t necessary for survival.
Example: Money
Goods
Goods are physical objects.
Example: clothes
Services
Services are actions or activities that one person performs for another.
Example: Getting nails done
Scarcity
Scarcity is when there are limited quantities of resources to meet unlimited wants.
Example: When someone wants to buy one thousand basketballs but the company doesn’t have enough resources to make them.
Shortage
A situation in which a good or service is unavailable.
Example: Not enough tomatoes because farming was bad one season.
Factors of production – land, labor and capital
The three groups of resources that are used to make all goods and services.
Example: land: a farm, labor: farmers, capital: the tomatoes
Physical Capital
All human-made goods that are used to produce other goods and services
Example: tools and buildings
Human Capital
The skills and knowledge gained by a worker through education and experience
Example: a college degree
Entrepreneurship
Ambitious leader who combines land, labor, and capital to create a market new goods and services
Examples: Bill Gates
Opportunity Cost
The most desirable alternative given up as the result of a decision
Example: Giving up finishing college to get a job right away and make money
Trade-offs
An alternative that we sacrifice when we make a decision
Example: Trading good grades for having a job
Guns or butter?
A phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods
Example: In world war two a lot of factories focused on goods necessary to war rather than designer shoes and such
Marginal thinking, marginal cost, marginal benefit
Deciding whether to do or use one additional unit of some resource
Example: Either wake up early to study or sleep in late and not study at all
Production Possibilities Curve
A graph that shows alternative ways to use an economy’s resources
Example: a graph of a curve between watermelon and shoes produced
Production Possibilities Frontier
The line on a production possibilities graph that shows the maximum possible output
Example: The line connecting the dots on the watermelon vs. shoes graph that shows the most possible output of each item
Efficiency
Using resources in such a way as to maximize the production of goods and services
Example: making all workers at a factory meet a specific amount of goods produced
Underutilization
Using fewer resources that an economy is capable of using
Example: All the workers at a factory not making all of the shoes they have the supplies for
Law of increasing costs
Law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases
Example: as production switches from shoes to watermelons, more and more resources are necessary to produce watermelons
Law of diminishing marginal returns
If one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output.
Example: There comes a time where you can’t make that many watermelons than you were before because you would get to infinite
Should government provide safety regulations at any cost?
Yes, people’s lives are more important than the amount of goods being produced.
Chapter 2 Economic Systems
Economic system
The method used by a society to produce and distribute goods and services
Example: Capitalism is when a society distributes goods and services free of the government
Three key economic questions
1. What will be produced and what quantity?
2. How will it be produced?
3. For who?
Factor payments
The income people receive for supplying factors of production, such as land, labor, or capital
Example: Landowners receive rent
Economic Goals & Values – Efficiency,
Societies try and maximize what they can get for the resources they have to work with
Example: a society making as much food as they can
-Freedom,
Making your own economic choices
Example: I can start any business I want
-Security & predictability,
Not being uncertain; being certain
Example: We want to know that the gas pumps will be full when we get to them
-Equity,
What constitutes a fair share of goods and services
Example: Lawyers earn more than nurses
-Growth & innovation,
Nation must grow to improve its standard for living
Example: making a cotton gin
-Other goals – environmental…
nation must prioritize its goals
Economic systems – traditional,
Economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services
Example: Some communities in Africa
-Market,
Economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets
Example: Mexico
-Command,
Economic system in which a central authority is in command of the economy; a centrally planned economy
Example: China
-Mixed economies
Market-based economic system with limited government involvement
Example: USA
Markets
An arrangement that allows buyers and sellers to exchange things
Example: Cub Foods
Specialization
The concentration of the productive efforts of individuals and firms on a limited number of activities
Example: A baker specialized in making breads, cakes, and cookies
Circular flow model
-Factor market
Market in which firms purchase the factors of production from households
Example: Getting a paycheck
-Product market
The market in which households purchase the goods and services that firms produce
Example: buying a good
-Role of households and firms
Households get money from firms and make products for them, then households give money to firms and buy products from them.
Features of Market economy – self-interest,
One’s own personal gain
Example: an entrepreneur making themself a lot of money
-Competition,
The struggle among producers for the dollars of consumers
Example: Microsoft vs. Apple
-Invisible hand,
Term economists use to describe the self-regulating nature of the marketplace
Example: Apple comes out with a tablet, all other technology companies will too
-Private property,
Citizens own privacy to the land they buy
Example: Police need a warrant to search a home
-Free enterprise
an economic system in which private business operates in competition and largely free of state control
Example: Microsoft can produce anything they want without asking the government
Advantages of the free market
Economic efficiency, economic freedom, economic growth, consumer sovereignty
Socialism
A social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society
Example: Canada
Communism
A political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government
Example: China
Authoritarian
Requiring strict obedience to an authority, such as a dictator
Example: Kim Jong Un in North Korea
Collective
Large farm leased from the state to groups of peasant farmers
Example: The Soviet Union
Heavy industry
Industry that requires a large capital investment and that produces items used in other industries
Example: Soviet factories
Laissez faire
The doctrine that states that government generally should not intervene in the marketplace
Example: the government not setting prices on goods and services
Transition economy
Period of change which an economy moves away from a centrally planned economy towards a market-based system
Example: Russia
Privatization
To sell state-run firms to individuals
Example: Russia
Role of government in the circular flow model
The government expenditures households and firms
Example: Taxing people and providing public resources
Mixed Economies continuum
A range with no clear divisions, ranges from centrally planned (North Korea) to free market (Hong Kong)
Chapter 3 American Free Enterprise
Profit motive
The force that encourages people and organizations to improve their material well-being
Example: The American economy
Open opportunity
The concept that everyone can compete in the marketplace
Example: Someone that grew up in Chicago could have as much of an advantage in the market as someone in Chanhassen
Private property rights
The concept that people have the right and privilege to control their possessions as they wish
Example: A police needing a warrant to search a home
Free contract
The concept that people may decide what agreements they want to enter into
Example: Microsoft signing a deal with a big inventor
Voluntary exchange
The concept that people may decide what and when they want to buy and sell
Example: Someone could go to best buy and buy a Microsoft or a Mac computer
Interest groups
A private organization that tries to persuade public officials to act or vote according to group members’ interests
Example: Aid for farmers
Public disclosure laws
Laws requiring companies to provide full information about their products
Example: a medicine company has to tell their customers all of the side effects of their drug
Public interest
The concerns of the public as a whole
Example: the whole public wants lower prices
Macroeconomics
The study of behavior and decision making of entire economies
Example: Studying capitalism
Microeconomics
The study of the economic behavior and decision making of small units, such as individuals, families, and businesses
Example: studying the decisions of microsoft
GDP
Gross domestic product. The total value of all final goods and services produced in a particular economy
Example: All of the goods produced by the USA
Business cycle
A period of macro-economic expansion followed by a period of contraction
Example: The stock market
Work ethic
A commitment to the value of work and purposeful activity
Example: a student’s commitment to their homework/studying
Technology
The process used to produce a good or service
Example: Using a 3D printer to create a ball
Public good
A shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers
Example: Roads
Public sector
The part of the economy that involves the transactions of the government
Example: Taxes paying a teacher’s paycheck
Private sector
The part of the economy that involves the transactions of individuals and businesses
Example: Microsoft selling a person a computer
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 public good
Example: a person who doesn’t pay their taxes but their kid goes to school
Market failure
A situation in which the market does not distribute resources efficiently
Example: Free riders
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
Example: teens being trained by one company and hired by another who benefits from their skills without having paid for them
Poverty
An income level below that which is needed to support families or households
Example: being homeless
Welfare
Government aid to the poor
Example: welfare checks to a person depending how many kids they have
Cash transfers – programs?
TANF, Social Security, Unemployment insurance, Worker’s compensation
In-kind benefits
Goods and services provided for free or at greatly reduced prices
Examples: food stamps, subsidized housing, legal aid
5 points: (x1)
-Blog Post Summary of Article:
http://www.nytimes.com/2015/01/28/us/politics/indiana-will-allow-entry-to-medicaid-for-a-price.html
The article "Indiana Will Allow Entry to Medicaid for a Price" summarizes the disagreements that republicans face with Obama's Affordable Care Act and how they can twist the act to their own state so that it fits their standards. In Indiana, the governor decided that he would expand the amount of people eligible to receive medicaid but would put a conservative twist on it by charging monthly premiums or copay to those who can't make the premiums. This seems like a good solution because more people will take responsibility for their own health care and therefor hopefully make smarter decisions.
In class, we discussed different health care options across the world and the difference between communism, socialism, and capitalism. While the United States is a capitalist country, some people seem in favor of going towards a more socialist health care approach. Indiana took this health care into their own hands and kept the capitalist ideology, which is what most Americans would like.
-Blog Post Summary of Article:
http://www.nytimes.com/2015/01/28/us/politics/indiana-will-allow-entry-to-medicaid-for-a-price.html
The article "Indiana Will Allow Entry to Medicaid for a Price" summarizes the disagreements that republicans face with Obama's Affordable Care Act and how they can twist the act to their own state so that it fits their standards. In Indiana, the governor decided that he would expand the amount of people eligible to receive medicaid but would put a conservative twist on it by charging monthly premiums or copay to those who can't make the premiums. This seems like a good solution because more people will take responsibility for their own health care and therefor hopefully make smarter decisions.
In class, we discussed different health care options across the world and the difference between communism, socialism, and capitalism. While the United States is a capitalist country, some people seem in favor of going towards a more socialist health care approach. Indiana took this health care into their own hands and kept the capitalist ideology, which is what most Americans would like.