Intro to Economics

opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

ceteris paribus

a Latin phrase that means "all other things held constant"

circular flow model

A diagram that traces the flow of resources, products, income, and revenue among economic decision makers

production possibility frontier

illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity produced of the other

positive economic statements

statements that are factual about the economy

normative economic statements

statements that make a judgement about an economy

trade offs

Alternatives that must be given up when one is chosen rather than another

market economy

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

command economy

an economy in which production, investment, prices, and incomes are determined centrally by a government.

factors of production

Land, labor, and capital; the three groups of resources that are used to make all goods and services

land

all natural resources used to produce goods and services

labor

Human effort directed toward producing goods and services

capital

money for investment

economic questions

What to produce? How to produce? For whom to produce?

diminishing marginal utility

Decreasing satisfaction or usefulness as additional units of a product are acquired

marginal utlity

the extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product

marginal benefit

the additional benefit to a consumer from consuming one more unit of a good or service

marginal cost

the cost of producing one more unit of a good

marginal revenue

the additional income from selling one more unit of a good; sometimes equal to price

total utility

the total amount of satisfaction obtained from consumption of a good or service

Utility

usefulness

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage

the ability to produce a good using fewer inputs than another producer

Inputs

the resources—such as labor, money, materials, and energy—that are converted into outputs

Outputs

the goods, services, and ideas that result from the conversion of inputs

Consumer Choice Theory

Relates consumers' wants and preferences to the goods and services they actually buy