Econ Unit 1

Economics

A social science that studies how scarce resources are allocated to satisfy unlimited human needs and wants

Scarcity

The fundamental economic problem where resources (Factors of production) are finite/ limited relative to infinite human wants

Choice

The decision-making process required because scarce resources cannot satisfy all wants, forcing individuals and societies to select between alternative options

Opportunity Cost

The value of the next best alternative forgone when making an economic decision

Microeconomics

The branch of economics that examines the behavior and interactions of individuals decision-making units, such as consumers, workers, and firms

Macroeconomics

the branch of economics that studies the economy as a whole, focusing on aggregate variables like national income, general price levels , and total employment

Factors of production

the fundamental inputs used to produce goods and services

land

all natural resources provided by nature

labour

the physical and mental human effort contributed to the production process

capital

man-made physical resources used to produce other goods and services

entrepreneurship

the ability to organize and combine the other three factors of production, while taking on the risks of a business

free good

good that is not scarce, has no opportunity cost involved in its consumption and is unlimited in supply

economic good

a good that is scarce relative to demand and whose production involves an opportunity cost

resource allocation

the assignment of available scarce resources to specific uses among competing alternatives

allocative efficiency

an optimal allocation of resources where society produces the combination of goods and services most desired by consumers

productive efficiency

producing output at the lowest possible average total cost, utilizing resources fully without waste

Production possibilities curve

a visual model representing the maximum combination of two goods or services an economy can produce when all resources are fully and efficiently employed

Circular Flow of income model

an economic model showing the continuous flow of money, good, services, and factors of production between different sectors of an economy (households, firms, government, financial sector, foreign sector)

injections

additions of money entering the circular flow model that do not originate directly from domestic household consumption

leakages / withdrawal

direct diversions of household income away from spending on domestic output

ceteris paribus

A Latin phrase meaning "all other things remaining equal," used by economists to isolate the relationship between two specific variables

positive economics

Factual statements about the economy that can be tested, verified, or refuted using empirical evidence

normative economics

Subjective or value-based statements about what the economy ought to be, which cannot be proven true or false