econ unit 1 study guide, Cheat Sheet of Economics

Download econ unit 1 study guide and more Cheat Sheet Economics in PDF only on Docsity! Unit 1 Study Guide 1. Know the four factors of production a. Land - fixed spaces with limited supply b. Capital - tools, equipment, machinery (the things you’re using to produce) 2. Economic questions (3) that must be asked along with paradox of value: a. Paradox Value: in order for things to have value, scarcity is necessary i. What to produce? ii. How to produce it? iii. For whom to produce? 3. Why study economics: a. Helps explain how our economy works b. Predictions: will incomes rise or fall? 4. GDP: Gross domestic product: The dollar value of all final goods, services, and structures produced within a nation during 12-month periods; GDP is the key measure of a state’s economic health 5. Decision-making grid and alternative choices a. Decision-making grid: allows consumers to consider alternatives and decide which one comes closest to meeting their needs b. Alternative choices: deciding between various options for the same good or service 6. Economic Systems - command, traditional, free enterprise, free-market - government role in them a. Command Economy: rely on a central authority to make economic decisions; heavy government involvement i. Advantages: it can change (for the better) drastically, and public services are more readily available ii. Disadvantages: ignores basic wants and needs of customers b. Traditional Economy: utilizes rituals, habits, and/or customs to create a very basic economic system; no government involvement as people/society isn’t oriented around a central power i. Advantages: everyone has a role to play and knows what to do; stable and predictable ii. Disadvantages: discourages new ideas & new ways of thinking; can lead to economic stagnation c. Market Economy: Consumers and businesses answer/agree on economic questions together; little government involvement i. Advantage: Higher degree of individual freedom ii. Disadvantages: Does not provide public services the way a command economy would d. Free-market economy: mix of different market styles; government involvement can vary (they can set public health regulations or labor laws) 7. In free enterprise, the government is what? a. Allow individuals to make the most of their economic resources 8. Capital goods vs durable goods v nondurable goods a. Capital goods: Goods we use to make other goods b. Durable goods: Goods that are long-lasting and not just single-use c. Nondurable goods: goods that are single-use and not able to be used more than once or maybe a few times 9. Why do we have scarcity a. Paradox of value: in order for things to have some value, there needs to be a limit 10. Opportunity costs: The cost for the next-best alternative 11. Productivity Possibility Frontier - on the curve as well as off: - Allows producers to decide how to allocate limited resources for maximum efficiency/product and best use of resources - PPF moves outward when there are more resources &/or increased productivity 12. Advantages and disadvantages of different business organizations - sole proprietorship, partnership, corporation: a. Sole proprietorship: business owned by just a single person i. Advantages: most common, easy and mobile for the owner, no business taxes ii. Disadvantages: unlimited liability; difficult to raise capital, inventory; difficult to attract employees, especially skilled ones; little managerial experience is not appealing externally b. Partnership: i. General partnership: all partners are responsible for management ii. Limited partnership: one or more partners is inactive in the actual running of the business 1. Disadvantages: debt is reliant on involvement in business iii. Advantages: easy to start up, each partner brings a skillset to the table, attract more financial capital than a proprietorship iv. Disadvantages: each partner is fully responsible for individual acts, and for other partners’ as well; limited life c. Corporations: formed by a business organization receiving permission from the national government i. Advantages: easy of raising money, easier to raise bonds and get loaned money; limited liability and unlimited life