Vocab 1
the separation of a work process into a number of tasks, with each task performed by a separate person or group of persons
division of labor
what people have to give up in order to get what they want
opportunity cost
humans wants for goods, services, and resources exceed what is available (there is a limit to everything)
scarcity
model that shows the combined items a person can buy based on their income
budget constraint model
the difference between exports and imports
exports are goods/services produced domestically and selled abroad and imports and goods/services produced abroad and sold domestically
the combined items a person can buy based on their income
Budget constraint
the market in which households sell their labor as workers to business firms or other employers
the labor market
pictures the economy as two groups, (households and firms/businesses), that interact in two markets, (goods/service and labor)
circular flow diagram
a market in which firms are sellers of what they produce and households are buyers
the goods and service market
An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next
traditional economy
economic system were decision-making is decentralized
market economy
describe how the world should be - opinion based (cannot be tested, since opinions can't be true or false)
normative statements
claims that attempt to describe the world as it is; FACTUAL (can be proved or disproved)
positive statements
An economic system in which the government or ruling system controls a country's economy; in turn government provides individual necessitates
command economy
what type of countries are least affected by globalization and why
Larger economies because they can contain more of the division of labor in their borders
government policy that attempts to manage the economy by controlling taxing and spending
fiscal policy
policies that affect bank lending, interest rates, and financial capital markets
monetary policy
as the level of production increases, the average cost of producing each individual unit decreases
economies of sale
the concept that the particular combination of goods and services on the production possibility curve that a society produces represents the combination that society most desires
essentially just producing the right amount of goods for a particular society
allocative efficiency
the remarkable possibility that broader social good can emerge from selfish individual actions (ie. the market will self-regulate)
the invisible hand
equation to find budget constraint
Budget = P1 Q1 + P2 Q2
reasons for globalization (MUST LIST AT LEAST 3 OUT OF 4)
-decrease transportation costs (due to improvements in shipping & air cargo
-better technology have made it easier to have long-distance economic connections
-Some products can be in the form of information (ie. computer software, financial advice, travel planning, music, books/movies, etc) which are much easier to transport over telephone and computers at ever-lower costs
-International treaties and agreements between countries have encouraged greater trade
as production of a good or service increases, the marginal opportunity cost of producing it increases as well
ie. the opportunity cost of a good rises as more of the good is produced
the law of increasing opportunity cost
A measurement of the total goods and services produced within a country.
Gross Domestic Product (GDP)
What are the two main objections to economic way of decision making
MUST NAME BOTH
1) “People, Firms, and Society Do Not Act Like This”
ie. Most people don’t require the knowledge to use the economic approach to decision making
2) “People, Firms, and Society Should Not Act This Way”
ie. The economics approach is immoral because it portrays people as being “self-interested”. Instead people should be taught to care more about others