Economy Unit 1 Vocab

Economics

The study of how scarce resources are allocated

Individual Choice

The decision by an individual of what to do, which necessarily involves a decision of what not to do

Economy

A system for coordinating a society’s productive and consumptive activities

Market Economy

An economy in which decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions

Resource

Anything, such as land, labor, and capital, that can be used to produce something else; including natural resources and human resources

Land

All resources that come from nature, such as minerals, timber, and petroleum

Labor

The effort of workers

Capital

Manufactured goods used to make other goods and services

Entrepreneurship

The efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and innovating to develop new products and production processes

Scarce

In short supply; a resource is scarce when there is not enough of the resource available to satisfy all the various ways a society wants to use it

Opportunity Cost

The real cost of an item: what you must give up in order to get it

Microeconomics

The branch of economics that studies how people make decisions and how those decisions interact

Macroeconomics

The branch of economics that is concerned with the overall ups and downs in the economy

Economic Aggregates

Economic measures that summarize data across different markets for goods, services, workers, and assets

Positive Economics

The branch of economic analysis that describes the way the economy actually works

Normative Economics

The branch of economic analysis that makes prescriptions about the way the economy should work

Business Cycle

The short-run alternation between economic downturns, known as recessions, and economic upturns, known as expansions

Depression

A very deep and prolonged downturn

Recessions

A period of economic downturn when output and unemployment are falling; also referred to as a contraction

Expansions

Period of economic upturn in which output and employment are rising; most economic numbers are following their normal upward trend; also referred to as a recovery

Employment

The total number of people currently employed for pay in the economy, either full-time or part-time

Unemployment

The total number of people who are actively looking for work but aren’t currently employed

Labor Force

The number of people who are either actively employed for pay or unemployed and actively looking for work; the sum of employment and unemployment

Unemployment Rate

The percentage of the total number of people in the labor force who are unemployed, calculated as unemployment/(unemployment + employment)

Output

The quality of goods and services produced

Aggregate Output

The economy’s total production of final goods and services for a given time period, usually a year. Real GDP is the numerical measure of aggregate output typically used by economists

Inflation

A rise in the overall level of prices

Deflation

A fall in the overall level of prices

Price Stability

When the aggregate price level is chnging only slowly

Economic Growth

An increase in the maximum amount of goods and services an economy can produce

Model

A simplified representation of a real situation that is used to better understand real-life situations

Other Things Equal Assumption

The assumption that all other factors are held constant to isolate the effect of a single variable on an economic outcome

Trade-Off

When you give something up to have something else

Production Possibilities Curve (PPC)

Illustrates the trade-offs facing an economy that produces only two goods; shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced.

Efficient

Describes a marker or economy that makes all opportunities to make some people better off without making other people worse off

Technology

The technical means for the production of goods and services

Trade

When individuals provide goods and services to others and receive goods and services in return

Gains from Trade

An economic principle that states that by dividing tasks and trading, people can get more of what they want through trade than they could if they tried to be self sufficient

Specialization

A situation in which different people each engage in different tasks that he or she is good at performing

Comparative Advantage

The advantage conferred if the opportunity cost of producing the good or service is lower for another producer.

Absolute Advantage

The advantage conferred by the ability to produce more of a good or service with a given amount of time and resources; not the same thing as comparative advantage

Competitive Market

A market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold

Supply and Demand Model

A model of how a competitive market works

Demand Schedule

A list or table showing how much of a good or service consumers will want to buy at different prices

Quantity Demanded

The actual amount of a good or service consumers are willing to buy at some specific price

Demand Curve

A graphical representation of the demand schedule, showing the relationship between quantity demanded and price

Law of Demand

The principle that a higher price for a good or service, other things equal, leads people to demand a smaller quantity of that good or service

Change in Demand

A shift of the demand curve, which changes the quantity demanded at ant given price

Movement Along the Demand Curve

A change in the quantity demanded of a good that results from a change in the price of that good

Substitutes

Pairs of goods for which a rise in the price of one of the goods leads to an increase in demand for the other good

Complements

A pair of goods for which a rise in the price of one good leads to a decrease in the demand for the other good

Normal Good

A good for which a rise in income increases the demand for the good—the “normal” case

Inferior Good

A good for which a rise in income decreases the demand for the good

Individual Demand Curve

A graphical representation of a relationship between quantity demanded and price for an individual consumer

Quantity Supplied

The actual amount of a good or service that producers are willing to sell at some specific price

Supply Schedule

A list or table showing how much of a good or service producers will supply at different prices

Supply Curve

A graphical representation of the supply schedule, showing the relationship between quantity supplied and price

Law of Supply

Other things being equal, the price and quantity supplied of a good are positively related

Change in Supply

A shift of the supply curve, which changes the quantity supplied at any given price

Movement Along the Supply Curve

A change in the quantity supplied of a good that results from a change in the price of that good

Input

A good or service used to produce another good or service

Individual Supply Curve

A graphical representation of the relationship between quantity supplied and price for an individual producer

Equilibrium

An economic situation in which no individual would be better off doing something different

Equilibrium Price

The price at which the market is in equilibrium, that is, the quantity of a good or service

Market-Clearing Price

The price at which the demand for a good by consumers is equal to the number of goods that can be produced at that price

Equilibrium Quantity

The quantity of a good or service bought and sold at the equilibrium price.

Surplus

The excess of a good or service that occurs when the quantity supplied exceeds the quantity demanded; surpluses occur when the price is above the equilibrium price

Shortage

The insufficiency of a good or service that occurs when the quantity demanded exceeds the quantity supplied; shortages occur when the price is below the equilibrium price

Price Controls

Legal restrictions on how high or low a market price may go

Price Ceilings

The maximum price sellers are allowed to charge for a good or service; a form of price control

Price Floor

The minimum price buyers are required to pay for a good or service; a form of price control.

Minimum Wage

A legal floor on the wage rate. The wage rate is the market price of labor.