Vocabulary for Unit 1: Econ

Economics

making optimal choices under conditions of scarcity

Scarcity

unlimited wants and limited resources

Opportunity Cost

to obtain more of one thing, society forgoes the opportunity of getting the next best thing

Utility

the pleasure, happiness, or satisfaction obtained from consuming a good or service

people act rationally in their self-interest

look for, pursue, and allocate their time and money towards opportunities to increase their utility

Marginal Analysis

comparisons of marginal benefits and marginal costs, usually for decision making

Macroeconomics

the economy as a whole

Microeconomics

a specific part of the economy

Aggregate

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

marginal

change; extra; additional

economizing problem

the need to make choices because economic wants exceed economic means/resources

economic resources (factors of production)

the land, labor, capital, and entrepreneurial ability that are used in the production of goods and services

production possibilities curve

a graphical representation of choices, it clarifies the economic problem

optimal allocation

the optimal production of any item is where it's marginal benefit is equal to its marginal cost

economic system

the method used by a society to answer the 3 fundamental questions

fundamental questions

What to produce? How to produce? Who will receive products?

market system

an economic system in which the private decisions of consumers, resource suppliers, and firms determine the distribution of goods and services (capitalism/market economy)

competition

the mechanism of control for the market system

circular flow diagram

An illustration showing the flow of resources from households to businesses and of products from businesses to households. These flows are accompanied by reverse flows of money from businesses to households and from households to businesses.

resource market

a market in which households sell and businesses buy resources

product market

the market in which households purchase the goods and services that businesses produce

adam smith

his invisible hand promotes public interest through a market system where the primary motivation is self-interest

demand

shows how much of a product consumers are willing and able to buy

diminishing marginal utility

decrease in satisfaction or usefulness from having one more unit of the same product

income effect

the change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power

substitution effect

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

determinants of demand

factors such as the number of buyers in the market, consumer expectations, consumers' preferences, the prices of related goods, and consumer's incomes, all of which shifts the demand curve to the right or left when they change.

substitute goods

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

complementary good

Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely).

supply

shows the amounts of a product a producer is willing and able to produce and sell at a specific price

determinants of supply

factors such as the number of sellers in the market, taxes and subsidies, resource prices, producer expectations, technology, and prices of other goods; all of which shift the supply curve left or right when they change.

equilibrium

A state of balance

surplus

A situation in which quantity supplied is greater than quantity demanded

shortage

A situation in which quantity demanded is greater than quantity supplied

productive efficiency

a situation in which a good or service is produced at the lowest possible cost

allocative efficiency

when the mix of goods being produced represents the mix that society most desires

price ceiling

maximum legal price that can be charged for a product (shortage)

price floor

a minimum price for a good or service (surplus)

positive economics

describes and explains various economic phenomena and it is based on fact and cannot be approved or disapproved

normative economics

focuses on the value of economic fairness, or what the economy "should be" or "ought to be." and it is based on value judgments.

law of increasing opportunity cost

each additional increment of one good requires the economy to give up successively larger increments of the other good