| A | B |
|---|
| basic problem of economics | scarcity |
| want | anything other than a need |
| need | food, clothing, shelter |
| opportunity cost | what you give up when you choose something else |
| production possibilities curve | shows all of the things that could be made with the resources available |
| economic models | used to show how people react to changes in the economy |
| factors used in making economic models | price of the item, income of the average buyer, and price of alternative items |
| Adam Smith | founder of modern economics who coined the "invisible hand" theory |
| command economy | government controls the factors of production |
| market economy | factors of production are controlled by individuals |
| Karl Marx | father of communism |
| disposable income | money a person has left after paying taxes |
| discretionary income | money left after taxes and fixed expenses |
| bait and switch | illegal advertising tactic used to get you in the store and then to buy a more expensive item |
| consumerism | movement to educate buyers about purchases they make so that they demand better products |
| principal | amount of money originally borrowed |
| interest | money paid for the privilege of borrowing money |
| installment debt | paid in equal amounts over a set period of time |
| compounding interest | can work for or against you, depending on if you are the lender or the borrower |
| stock | purchasing part ownership of a company |
| utility | amount of satisfaction you receive from a good or service |
| law of demand | as price increases, demand decreases and vice versa |
| diminishing marginal utility | the decreasing satisfaction you receive from each additional unit of a good (ex. hershey kisses) |
| real income effect | limits the ability to demand to those who can afford an item |
| substitution effect | if one product increases in cost, a similiar product's demand will increase |
| complementary goods | two products that are usually sold together (PB and jelly) |
| elasticity of demand | how much price affects the demand for an item |
| inelastic goods | items that must be purchased despite the price (gas, milk, etc) |
| demand curve shifts left | population decrease, income deceases, etc |
| demand curve shifts right | holiday shopping, fads, population increase, income increase, etc. |
| law of supply | as price goes up, more products are supplied |
| law of diminishing returns | adding more workers will eventually not increase output |
| factors of production | land, labor, capital, and sometimes teachnology |
| equilibrium price | point at which supply and demand are the same |
| surplus | more is supplied than being demanded |
| shortage | more is demanded than being supplied |
| invisible hand | theory that said that competition is good for the economy |
