Economics Review :: Economics Cheat Sheet

Economics Review Chapter 1 Section 1 1. Economics: study of how individuals & nations make choices about ways to use scarce resources to fulfill their needs & wants. 2. Scarcity: state in which people don’t & cannot have enough income, time, or other resources to satisfy. 3. Factors of production: resources of land, labor, capital, & entrepreneurship used to produce goods & services. 4. Entrepreneurship: ability to start new businesses, to introduce new products, & techniques. Section 2 1. Trade-off: exchanging one thing for the use of another, often making unavoidable choices because of the problem of scarcity. 2. Opportunity cost: value of the next best alternative given up for the alternative that was chosen. Section 3 1. Economy: all activity in a nation that affects the production, distribution, & use of goods & services. 2. Economic model: simplified representation of the real world which shows people’s reactions to changes in the economy; theory. 3. Values: beliefs or characteristics that an individual or group considers important. Chapter 2 Section 1 1. Traditional economic system: economic systems are based on customs, beliefs, & ways of doing things that have been passed down from generation to generation. 2. Command economic system: the government controls the factors of production & makes all decisions about their use; also called controlled economy. 3. Market economic system: individuals own the factors of production & make economic decisions through free interaction – government doesn’t intervene. 4. Distribution of income: money payment for work, the amount of health care, education, food, & so on, that each person receives; distribution of goods & services among all members of an economic system. Section 2 1. Capitalism: private individuals own the factors of production and decide how to use them within the limits of the law; market economic system & free enterprise system. 2. Free enterprise system: individuals own the factors of production & decide how to use them within legal limits. 3. Profit: money left after all the costs of production – wages, rent, interest, & taxes have been paid. 4. Profit incentive: desire to make money that motivates people to produce & sell goods & services that others ant to buy. 5. Competition: rivalry among producers or sellers of similar goods to win more business by offering the lowest prices or better quality. Section 3 1. Standard of living: material well-being of an individual, group, or nation measured by the average value of goods & services used by the average citizen during a given period of time.