Macroeconomics - Chapter 1 Terms

economics

the social science concerned with how individuals, institutions, and society make optimal choice under conditions of scarcity

economic perspective

a viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions

scarcity

 the limits placed on the amounts and types of goods and services available for consumption because of limited economic resources

opportunity cost

The amount of other products that must be forgone or sacrificed to produce a unit of a given product

utility

the satisfaction or pleasure a consumer obtains from the consumption of a good or service 

marginal analysis

 the comparison of marginal (“extra” or “additional”) benefits and marginal costs usually for decision making

scientific method

the procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws

economic principle

a widely accepted generalization about the economic behavior of individuals or institutions

microeconomics

• part of economics concerned with: 

  • (1) decision making by individual units such as a household, a firm, or an industry

  • (2) individual markets, specific goods, and services, and product and resource prices

macroeconomics

the part of economics concerned with the performance and behavior of the economy as a whole

aggregate

a collection of specific economic units treated as if they were one unit

positive economics

 the analysis of facts or data to establish scientific generalizations about economic behavior

normative economics

the part of economics involving value judgements about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics

economizing problem

the choices necessitated because society’s economics wants for goods and services are unlimited but the resources available to satisfy these wants are limited

budget line

a line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products’ prices

economic resources

 the land, labor, capital, and entrepreneurial ability that are used to produce goods and services (aka factors of production)

land

 all natural resources used in the production process (ex: mineral and oil deposits, water resources, wind power, sunlight, arable land)

labor

any mental or physical exertion on the part of a human being that is used in the production of a good or service

capital

man-made physical objects (factories, roads) and intangible ideas (ex: the recipe for cement) that do not directly satisfy human wants but which help to produce goods and services that do satisfy human wants

consumer goods

products and services that satisfy human wants directly

investment

expenditures that increase the volume of physical capital (roads, factories) and intangible ideas (formulas, processes, algorithms) that help to produce goods and services [this is an economic investment]

entrepreneurial ability

the human resource that combines the other economic resources of land, labor, and capital to produce new products or make innovations in the production of existing products; provided by entrepreneurs

entrepeneurs

individuals who provide entrepreneurial ability to firms by setting strategy, advancing innovations, and bearing the financial risk if their firms do poorly

factors of production

the four economic resources: land, labor, capital, and entrepreneurial ability

law of increasing opportunity costs

as the production of a good increases, the opportunity cost of producing an additional unit rises

economic growth

(1) an outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology. (2) an increase of real output (gross domestic product) or real output per capita