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Economic Terms
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There are some basic economic terms that we need to be aware of before we can learn about the economy.
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Wants Things we desire to have
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Goods Physical products tangible
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Services Activities people do for us for payment intangible
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What is needed to produce goods and services
Resources What is needed to produce goods and services
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Factors of Production Capital Entrepreneurship Labor --Human resources
Land -- Natural resources video
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Scarcity The result of an inability to satisfy all of everyone’s wants
EVERYTHING IS SCARCE scarcity
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Choices We can’t have everything we want
Therefore, we must choose what we get Scarcity choices
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Trade-offs Giving up some of one thing in order to get more of another
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Opportunity Cost The best alternative given up when making a decision
video
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Economics Studies how people choose to use scarce resources to satisfy their wants
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Incentive Something that encourages or motivates a person toward an action
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Economizing Every choice involves an incentive, or benefit offered to encourage a certain action Choice is also influenced by utility, the benefit or satisfaction gained from the choice Every choice has a cost We economize by choosing the best mix of costs and benefits
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Production Possibility Curve
video
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Increasing Production
video
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Marginal Thinking The use of marginal cost and marginal benefit in decision making We stop doing something when the cost outweighs the benefit
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Max’s Decision Making Grid
A decision-making grid helps you to see what you lose when you make choices. Max’s decision-making grid shows the costs and the benefits of hours spent studying versus time spent socializing.
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Choice Benefit Opportunity Cost One hour of extra study D in Economics One hour with friends Two hours of extra study C in Economics Two hours with friends Three hours of extra study B in Economics Three hours with friends Four hours of extra study B+ in Economics Four hours with friends Five hours of extra study A- in Economics Five hours with friends Six hours of extra study A in Economics Six hours with friends
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Unintended Effects Taking action to solve one problem results in something unrelated to occur. Example: raising the price on a pair of shoes to earn more money and ending up selling fewer shoes and actually losing money
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Microeconomics Studies the individual or a single business in the economy
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Macroeconomics Studies the economy as a whole
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Global Economy Economic actions taken anywhere in the world may affect an individual’s standard of living
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Market Whenever and wherever people voluntarily make exchanges with one another
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Exchanging Giving one thing for another (e.g. $ for food)
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Rationing Device A means for deciding who gets what portion of the available goods and services
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Competition Scarcity Competition. If there were enough resources we wouldn’t need to compete. People compete to get more of the rationing device
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Economic Questions What goods will be produced?
How will the goods be produced? For whom will the goods be produced?
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Types of Economies Traditional – economic questions answered by tradition Command/ socialism – economic questions answered by the government Free enterprise/ market/ capitalism – economic questions answered by business owners
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Differences between capitalism and socialism
Resources Owned by private individuals Owned by the government Government’s role in the economy Small role Large role Economic plans None Written by government decision makers Income distribution Government pays little attention to equality or inequality of income distribution Government pays much greater attention; may redistribute income Controlling prices May fluctuate – government doesn’t control Government controls prices to varying degrees
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Mixed Economies N. Korea France China US Command/Socialist Market/ Capitalism
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