Chapter 1: Limits, Alternatives, and Choices

A comprehensive set of 500 flashcards covering key concepts from Chapter 1 on Limits, Alternatives, and Choices in Economics.

Limits, Alternatives, and Choices

Chapter focusing on fundamental economic concepts and decision-making.

Scarcity

The condition of having limited resources to meet unlimited wants.

Trade-Offs

Choosing one option results in the loss of others.

Opportunity Costs

The value of the next best alternative forgone when a choice is made.

Economic Wants

Desires for goods and services that can satisfy needs.

Rational Decisions

Choices made by comparing marginal benefits and marginal costs.

Marginal Benefits

The additional satisfaction received from consuming one more unit of a good.

Marginal Costs

The cost associated with producing one more unit of a good.

Microeconomics

The study of individual consumers, firms, and markets.

Macroeconomics

The study of the overall economy and major aggregates.

Positive Economics

Economic statements based on facts and cause-and-effect relationships.

Normative Economics

Economic statements involving value judgments about how things ought to be.

Production Possibilities Curve (PPC)

A graphical representation showing the maximum combinations of two goods that can be produced with available resources.

Full Employment

A situation where all available labor resources are being used efficiently.

Unattainable Points

Combinations of goods that cannot be produced with currently available resources.

Attainable Points

Combinations of goods that are possible to produce given current resources.

Factors of Production

Resources used in the production of goods and services: land, labor, capital, and entrepreneurial ability.

Land (Factors of Production)

Natural resources used in the production process.

Labor (Factors of Production)

The physical and mental efforts used in the production of goods and services.

Capital (Factors of Production)

Manufactured resources used to produce goods and services.

Entrepreneurial Ability

The skill set that allows an individual to see new business opportunities and create new products or services.

Budget Line

A graphical representation showing combinations of two goods that can be bought with a given budget.

Scarcity and Choice

The need to make decisions due to limited resources.

Economic Growth

An increase in the production of goods and services over a specific time.

International Trade

The exchange of goods and services across international borders.

Incentives

Factors that motivate individuals to perform actions.

Utility

The satisfaction or pleasure obtained from consuming a product or service.

Ceteris Paribus

An assumption that all other variables remain constant when analyzing the relationship between two variables.

Production Possibilities Table

A table representing different combinations of two products that can be produced using a specific set of resources.

Marginal Analysis

The examination of the additional benefits of an activity compared to the additional costs.

Graphical Expression (Economic Models)

Visual representations that simplify complex economic relationships to understand patterns and behaviors better.

Economic Theory

A framework for understanding how economic agents behave and interact.

Standard of Living

The level of material well-being, comfort, and access to goods and services, typically measured by income.

Money

A medium of exchange used to facilitate transactions.

Inflation

A general increase in prices and fall in the purchasing power of money.

Inflation-Unemployment Trade-Off

The inverse relationship between inflation and unemployment in an economy.

Budget Constraint

The limits on the consumption choices of individuals based on their limited income.

Utilities Maximization

The goal of consumers to achieve the highest level of satisfaction from their choices.

Efficiency

The optimal production and allocation of resources to maximize output.

Productive Efficiency

A situation where resources are allocated in a way that maximizes the output of goods and services.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded.

Supply Curve

A graph showing the relationship between the price of a good and the quantity supplied.

Equilibrium Price

The price at which the quantity demanded equals the quantity supplied.

Shortage

A situation in which the quantity demanded exceeds the quantity supplied at a given price.

Surplus

A situation in which the quantity supplied exceeds the quantity demanded at a given price.

Economic Efficiency

Achieving the highest output with the least intention of expenditure or resources.

Trade-Off

The act of giving up one benefit in order to gain another.

Specialization

The process where individuals or businesses focus on a limited range of tasks or products.

Capital Goods

Manufactured assets (like machinery) used in the production of goods.

Consumer Goods

Goods that are purchased for consumption by the average consumer.

Factors of Production

Inputs used in the production of goods and services.

Commodities

Basic goods used in commerce that are interchangeable with other commodities of the same type.

Social Science

The study of human behavior and societal interactions.

Economics

The social science concerned with the production, distribution, and consumption of goods and services.

Market Economy

An economic system in which production and prices are determined by unrestricted competition between privately owned businesses.

Command Economy

An economic system in which the government decides what goods will be produced, how they will be produced, and who will receive them.

Mixed Economy

An economic system combining private and public enterprise.

Barter System

An archaic economic system in which goods and services are exchanged directly for other goods and services.

Trade Barriers

Government-imposed regulations such as tariffs and quotas to control the amount of trade across borders.

Monetary Policy

The process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate.

Fiscal Policy

The use of government spending and taxation to influence the economy.

Economic Indicators

Statistics that provide information about the economic performance of a country and its economic potential.

Consumer Price Index (CPI)

An index that measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Gross Domestic Product (GDP)

The total value of goods produced and services provided in a country during one year.

Real GDP

GDP that has been adjusted for inflation and reflects the true value of goods and services.

Nominal GDP

GDP measured in current prices, not adjusted for inflation.

Business Cycle

The fluctuations in economic activity that an economy experiences over a period.

Expansion

A phase of the business cycle where the economy is growing.

Recession

A period of economic decline characterized by falling GDP and rising unemployment.

Depression

A severe and prolonged downturn in economic activity.

Recovery

The phase of the business cycle following a recession during which economic activity begins to rise.

Consumer Debt

The total outstanding debt of consumers in a given economy.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

Substitute Goods

Goods that can be used in place of each other.

Complementary Goods

Goods that are often consumed together, so the demand for one affects the demand for the other.

Inferior Goods

Goods for which demand increases as income decreases.

Normal Goods

Goods for which demand increases as income increases.

Externalities

Costs or benefits that affect a party who did not choose to incur those costs or benefits.

Public Goods

Goods that are neither excludable nor rivalrous in consumption.

Market Failure

A situation where the allocation of goods and services is not efficient.

Monopoly

A market structure characterized by a single seller.

Oligopoly

A market structure where a few firms dominate.

Perfect Competition

A market structure with many competing firms, all of whom are price takers.

Imperfect Competition

A market structure where one or more firms have market power.

Utility Maximization

The process by which consumers choose goods that give them the greatest satisfaction.

Game Theory

The study of strategic decision making among interdependent actors.

Behavioral Economics

A field that examines the psychological, emotional, and social factors on economic decisions.

Information Asymmetry

A situation where one party has more or better information than the other.

Price Floor

A minimum allowable price, often imposed by the government.

Price Ceiling

A maximum allowable price, often imposed by the government.

Social Welfare

The overall well-being of individuals in a society.

Equity

The fairness or justice in the distribution of resources.

Efficiency Equity Trade-Off

The balance between achieving maximum efficiency in resource allocation and ensuring fairness.

Incentive Structure

The framework of rewards or penalties that motivate individuals' behavior.

Corporate Welfare

Government support or subsidies to businesses.

Subsidies

Financial assistance granted by the government to encourage the production of certain goods.

Tariffs

Taxes imposed on imported goods to protect domestic industries.

Quotas

Limits on the amount of a good that can be imported or exported.

Balance of Trade

The difference between the value of a country's exports and its imports.

Trade Deficit

A situation where a country's imports exceed its exports.