ECON 200 Exam 1

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Scarcity

The core of economics; forces choice in decision making

Opportunity Cost

What is given up in exchange for the choice that is made

The Margin

The costs and benefits of one more of something weighed together

Rational Behavior

Doing what is best for one’s self

Utility

Happiness or satisfaction from a good or service

Disutility

Anything that causes dissatisfaction

Capital

Human-made goods that produce other goods

John Locke

Believed all men had property rights over themselves; “life, liberty, and property”

Classical Liberals

The theory that all men have power over themselves; the populace gives power to the king; John Locke

Competition

Different economic bodies offering similar goods or services, forcing a choice to be made between them

Public Good

A good maintained by the government that benefits everyone

Common Property Resource

Something jointly owned by all (i.e. the fish in a public lake)

Moral Hazard

To enter a contract where either party withholds relevant information from the other

Socialism

An economic system where the government owns the capital

Social Darwinism

The idea that people’s economic standing is predetermined (i.e. the poor are supposed to be poor)

Scientific Socialism

Often used to describe Karl Marx’s theory of socialism

Fascism

An economic system in which capital is privately owned, but production is determined by the government

Legislative Branch

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Montesquieu

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President

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Electoral College

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Explicit Powers

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Distribution

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Social Welfare Function

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Equity

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Republic

A system of government in which elected representatives vote on behalf of their constituents

Explicit Cost

The measurable monetary cost

Marginal Cost

The costs and benefits weighed of “one more”

Good

Something that creates utility; consumers are willing to pay to own it

Bad

Something that creates disutility; consumers are willing to pay to get rid of it

Land

Naturally occurring resources from the ground, air, and water

Entrepreneur

A person or business that takes economic risk to earn greater economic rewards

Mercantilism

The belief that all trades have a “winner” (i.e. the one who profits) and a “loser”

Adam Smith

Economist that coveted the idea that economies should be run by individuals, not governments

Natural Price

A theoretical equilibrium price achieved if markets are left alone; both price and quantity are satisfactory for consumers and sellers

Externality

The effects of a decision made by one party onto another that was not part of making said decision

3 Questions

What to produce? How to produce? Who benefits from production?

Communism

Similar to socialism, but often with more worker involvement

Laissez Faire

The idea that economies function best with minimal government intervention

Planning

The idea that businesses in a socialist model must defer to the government’s verdict in production matters

Shortage

When there are more buyers than goods available

Executive Branch

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Senate

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Cabinet

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Free Rider

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Implied Powers

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Interpersonal Utility Comparison

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Normative Theories

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Efficiency

Getting the most output for the least input

Economic Problem

Unlimited wants; limited resources

Implicit Cost

A non-quantitave cost of a choice that’s made

Labor

The work done by people

Incentive

Any force driving particular decision to be made

Natural Law

The idea that certain values are known implicitly

Just Price

The term for a price that is decided solely by the cost to produce

Market

Any place where buyers and sellers negotiate exchanges

Equilibrium

A mutually beneficial pricepoint that true markets will inherently trend towards

Nonrivalous

A good that cannot be “used up”

Nonexclusive

A good that one does not need to pay for to use

Asymmetric Information

A trade or contract in which one party holds more relevant knowledge than the other

Capitalism

An economic model in which capital is privately owned

Self-interest

A motivation of what is best for one’s self; driving factor behind capitalism

Utopian Socialism

The belief that a universally beneficial society can be achieved through scientific methods

Command Economy

An economy where workers and consumers have little choice

Separation of Powers

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Judicial Branch

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House of Representatives

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Advice and Consent

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“General Welfare”

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Allocation

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Pareto Optimality

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Positive Theories

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