Define economics

The study of how people seek to satisfy their needs and wants by making choices

Explain how scarcity relates to economics

Scarcity is that there are limited quantities of resources

to meet unlimited wants

What is opportunity costs?

The most desirable alternative given up as the result of a

decision

What are trade offs

An alternative that is sacrificed when a decision is made

Define factors of production

Resources that are used to make all goods and services

What are the three factors of production?

Land, labor, & capital

Define consumer sovereignty

Is the power of consumers to decide what gets produced

What is self interest?

Means that buyers and sellers are focused on personal gain

What is competition?

The struggle among producers for the dollars of consumers

What is incentive?

For consumers is the hope of reward or the fear of punishment that encourages people to behave

in a certain way; incentives for business is selling more goods for

more profit

What is laissez faire?

The doctrine that states the government generally should not

intervene in the marketplace

What is consumer sovereignty?

Is that consumers decide what gets produced because businesses want

to meet the consumers desires

What are the five features of a market

economy? (capitalism)

1. Self interest2. Competition

3. Incentive4. Laissez faire

5. Consumer sovereignty

What are the benefits of a market economy?

Incentives to produce,Greater efficiency

Private ownership & innovation

What are the costs of a market economy?

More varied income,Unemployment

Poverty/homelessness, wealth gap

Describe Adam Smith

Believed that in each transaction, the buyer and seller consider

their self interest or personal gain

Describe Karl Marx

Believed that human labor was the source of all added value but keeps it as profit or exploiting the

workers

Describe John Maynard Keynes

Believed that government intervention may be needed in crisis situations to pull the economy out of depression

(pump money into the economy)

What is sole proprietorship?

A business owned and managed by a singled

individual

What is a partnership?

Owned by two or more persons who agree on specific

responsibilities

What is a corporation?

Owned by individual stockholders and run by a

board of directors

What is the role of stockholders in financing

corporations?Stockholders must invest money to buy

shares to finance and to part of the corporation. They are considered the

owners

What is the role of government in

regulation corporations?To make sure the corporations follow the

regulations they set such as filing quarterly and annual reports to the SEC

and taxation

Define the law of demand

Consumers buy more of a good when its price decreases and

less when it increases

Define the law of supply

The tendency of suppliers to offer more of a good at a higher

price

Describe perfect competition

Is when a large number of firms all produce the same product

Describe monopoly

A system that is dominated by a single seller

Describe monopolistic competition

When many companies sell products that are similar but

not identical

Describe oligopoly

Is when a fes large firms dominate a market

Define elasticity of demand

Is a measure of how consumers react to a change in price

Define elastic demand

Very sensitive to change in priceEx: the demand for a particular

brand

Define inelastic demand

Not sensitive to change in priceEx: goods with no substitutes-

water, gas, utilities

Define unitary demand

Is a demand whose elasticity is equal to 1

Ex: equilibrium

Define price floor

A government- or group-imposed limit on how low a price can be

charged for a product. For a price floor to be effective, it must be

greater than the equilibrium price

What is price ceiling?

It’s a government-imposed limit on the price charged for a

product

What is total cost?

Fixed costs plus variable costsEx: materials and labor

Define fixed cost

Is a cost that does not changeEx: rent mortgage

Define variable cost

May rise of fall depending on the quantity produced

Ex: raw materials

Define marginal cost

It is the cost of producing one more unity of a good

Ex: hiring a new worker

What is the golden rule of profit maximization?

Occurs at a point where marginal costs equals marginal revenue.

Thus, the optimal level of production occurs where marginal revenue equals marginal costs, the point of maximum profit as dictated by the golden rule