Section 1 Vocabulary

Blanc. 24-25.

Need (in terms of economics)

Something that does not have a substitute

Free (in terms of economics)

Something that has absolutely no cost to any person, place, or thing

Five Powers of Economic Thinking

• Resources cost more than you think

• Prices are signals to producers and consumers

• All economic behavior is rational

• All economic decisions are made at the margin

• People are maximizers

Normative statement

Statement of opinion

Positive statement

Statement of fact

Scarcity

Unlimited wants, but limited resources

Factors of production

Land, labor, capital, and entrepreneurship

Opportunity cost

Cost of the next best alternative

Fundamental questions of economics

• What should be produced?

• How are we going to produce it?

• Who is the consumer?

Command system

Government owned property, government control of production and distribution, government control of employment and inflation, central planning

Market system

Private property, free enterprise/free choice, self-interest, competition, specialization used to lower costs, use of money as a medium of exchange, limited role of government, individual decision

Allocative efficiencies

Any point that consumers are happy with

Productive efficiencies

Any point on the production possibilities curve

Advantage of international trade

Leads to growth; leaves time for other matters

Absolute advantage of international trade

Ability to produce at a lower cost

Comparative advantage

Ability to produce at a lower opportunity cost