Studied by 5 people
Scarcity
Fundamental economic problem of meeting people's visually unlimited wants with scarce resources.
TINSTAAFL
There's no such thing as a free lunch.
Utility
The pleasure, happiness, or satisfaction obtained from consuming a good or service.
Rational Self-Interest
Buying something out of both self-interest and rationality (for example: health care)
Economics
Social science concerned with how individuals, institutions, and society make best choices under conditions of scarcity.
Marginal Analysis
Comparisons of marginal benefits and marginal costs, usually for decision making.
Marginal Benefit (MB)
The additional satisfaction or utility that a person receives from consuming an additional unit of a good or service.
Marginal Cost (MC)
The change in the total cost that arises when the quantity produced changes by one unit.
Economic Principle
A statement about economic behavior or the economy that enables prediction of the probable effects of certain actions.
Ceteris Paribus
Commonly known as "All other things being equal".
Microeconomics
Branch of economics concerned with individual units such as a person, a household, a firm, or an industry.
Macroeconomics
Branch of economics that examines either the economy as a whole or its basic subdivisions or aggregates, such as the government, household, and business sectors.
Aggregate
A collection of specific economic units treated as if they were one unit.
Positive Economics
Focuses on facts and cause-and-effect relationships.
Normative Economics
Incorporates value judgements about what the economy should be like or what particular actions should be recommended to achieve a desirable goal.
Economizing Problem
The need to make choices because economic wants exceed economic means.
Budget Line
Schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income.
Trade-offs
Situations that involve losing one quality aspect of something in return for gaining another quality or aspect.
Opportunity Costs
The cost of an alternative that must be forgone in order to pursue a certain action.
Economic Resources
All natural, human, and manufactured resources that go into the production of goods and services.
Land
All natural resources ("gifts of nature") used in the production process, such as arable land, forests, mineral and oil deposits, and water resources.
Labor
Consists of the physical and mental talents of individuals used in producing goods and services.
Capital
All manufactured aids used in producing consumer goods and services.
Investment
The purchase of capital.
Entrepreneurial Ability
A special human resource, distinct from labor.
Function of an Entrepreneur
Takes the initiative in combining the resources of land, labor, and capital to produce a good or a service.
Function of an Entrepreneur
Makes the strategic business decisions that set the course of an enterprise.
Function of an Entrepreneur
Being an innovator.
Function of an Entrepreneur
Being a risk bearer.
Factors of Production
Land, labor, capital, and entrepreneurial ability. Commonly referred to as "inputs".
Consumer Goods
Products that satisfy our wants directly (pizza).
Capital Goods
Products that satisfy our wants indirectly by making possible more efficient production of consumer goods (robots).
Production Possibilities Curve
A graphical representations of the data presented in a production possibilities table.
Good
Material that satisfies human wants and provides utility.
Services
An intangible commodity.
Law of increasing opportunity costs
As the production of a particular good increases, the opportunity cost of producing an additional unit rises.
Optimal Output
The output of a good that, when sold, maximizes profit.
Economic Growth
A larger total output.
Fallacy of composition
One infers that something is true of the whole from the fact that it is true of some part of the whole.
Economics system
A particular set of institutional arrangements and a coordinating mechanism.
Traditional Economy
Economic system involving extensive subsistence agriculture or one that otherwise falls outside the definitions of market or command economies.
Command Economy
Government owns most property resources and decision making occurs through a central economic plan.
Market Economy
Private ownership of resources and the use of markets and prices to coordinate and direct economic activity.
Socialism
Government owns most property resources and economic decision making occurs through a central economic plan.
Laissez-faire
Government's role would be limited to protecting private property and establishing an environment appropriate to the operation of the market system.
Private Property Rights
Enables individuals and businesses to obtain, use, and dispose of property resources as they see fit.
Freedom of Enterprise
An economic system where few restrictions are placed on business activities and ownership.
Freedom of Choice
Enables owners to employ or dispose of their property and money as they see fit.
Self-interest
Motivating force of the various economic units as they express their free choices.
Competition
Rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume.
Market
An institution or mechanism that brings buyers and sellers into contact.
Production
The act of making products (goods and services)
Technology
Innovations that solve problems and make life easier.
Specialization
The use of resources to produce one or a few goods or services rather than an entire range of goods and services.
Division of Labor
Human Specialization
Medium of Exchange
The first and most important function of money.
Barter
Swapping goods for goods.
Money
Convenient social invention to facilitate exchanges of goods and services.
Five Economic Questions
What goods and services will be produced?
How will the goods and services be produced?
Who will get the goods and services?
How will the system accommodate change?
How will the system promote progress?
Consumer Sovereignty
Consumers are in command - crucial in determining the types and quantities of goods produced.
Dollar Votes
Used to register wants in the market.
Creative Destruction
Process of industrial mutation that revolutionizes the economic structure from within, destroying the old one, creating the new one.
Invisible Hand
Natural phenomenon that guides free markets and capitalism through competition for scarce resources.
Circular Flow Diagram
Illustrates the continuous, repetitive flow of goods and services, resources, and money.
Private Sector
Part of economy that is not state controlled, and is run by individuals and companies for profit.
Public Sector
Part of economy concerned with providing basic government services.
Households
Multiple streams of income used to buy goods and services.
Business Firm
Organization involved in the trade of goods, services, or both to consumers.
Law of Diminishing Returns
The marginal product of an employee will eventually decrease as the number of employees increase.
Paradox of Value
Although water is more useful for survival, diamonds command a higher price in the market.
Comparative Advantage
The ability to produce goods and/or services at a lower opportunity cost than others.
Absolute Advantage
The ability to produce a good or service at a lower cost per unit than any other.
Protective Tariffs
Excise taxes or duties placed on imported goods.
Import quotas
Limits on the quantities or total value of specific items that may be imported.
Nontariff Barriers
A form of restrictive trade where barriers to trade are set up and take a form other than a tariff.
Export Subsidies
Government payments to domestic producers of export goods.
Depreciation
A method of allocating the cost of a tangible asset over its useful life.
Principle of comparative advantage
Total output is greatest when each good is produced by the nation that has the lowest domestic opportunity cost for that good.
Terms of Trade
Value of a country's exports relative to that of its imports
Trading Possibilities Line
Different combinations of two products that an economy is able to obtain when it specializes in the production of one product and trades it to obtain the other product.
Productive Efficiency
The production of any particular good in the least costly way.
Allocative Efficiency
The particular mix of goods and services most highly valued by society.
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