Chapter 1 - ECO 1

Market system

firms respond to economic incentives

Scarcity

where wants are unlimited, resources are limited

Economics

study of choices of consumers, business managers, and gov. officials to attain goals given their resources

Market

group of buyers and sellers of a good/service & the institutional agreement by which they come together to communicate

Marginal analysis

comparing marginal benefits & marginal costs

Trade-off

favoring one thing over another

Opportunity cost

highest value alternative to an activity that has to be given up for said activity

Consumers

help decide what goods/services are produced when they buy

Firms

make decisions on what to produce based on consumer choices

Government

choose where to spend federal budget

Centrally planned economy

gov. decides how resources are allocated

Mixed economy

most decisions from buyers/sellers, but also gov. plays significant role in allocation of resources

Market economies tend to be ____ efficient than centrally planned economies

more

Productive efficiency

good/service is produced tat lowest possible cost

Allocative efficiency

production is in accordance with consumer preferences

Voluntary exchange

win-win for buyer & seller from a transaction

Equity

fairness

Economic model

simulated version of reality to analyze real world situation

Economic variable

measurable, can have different values

Correlation ___ causation

does not equal

Positive analysis

analysis concerned with what is

Normative analysis

analysis concerned with what ought to be

Microeconomics

study of how households and firms make choices, interact w/ markets, & gov. influence

Macroeconomics

study of economy as a whole

Firm/company/business

organization that produces goods/services

Entrepreneur

someone who operates as a businessman

Innovation

practical application of an invention

a firm’s Technology

process used to produce goods//services

Goods

tangible merchandise

Services

activities performed by others

Revenue

total amount received for selling good/serive

Profit

revenue-costs

Household

all persons occupying a home

Factors of production

labor. capital, natural resources

Capital

stocks/bonds, holdings OR manufactured goods used to make other goods

Human Capital

value of training/skills workers possess

Policy changes create ______

winners & losers

If distribution of money is changed, ____ of money is also changed

creation

3 assumptions in econonmic thinking

1. People are rational

2. People respond to incentives

3. Rational people choose/think at the margin

Traditional economy

roles are decided by tradition