CHAPTER 1 Limits, Alternatives, and Choices

Flashcards covering key vocabulary from Chapter 1: Limits, Alternatives, and Choices, including definitions of economic concepts, principles, and models.

Economics

A social science concerned with making optimal choices under conditions of scarcity, where economic wants exceed productive capacity.

The Economic Perspective

A viewpoint characterized by scarcity and choice, purposeful behavior, and marginal analysis.

Scarcity

The condition where resources are limited, meaning choices must be made.

Opportunity Cost

The value of the next best alternative that must be forgone as a result of making a choice.

Purposeful Behavior

Behavior driven by rational self-interest, where individuals seek utility and firms seek profit to achieve desired outcomes.

Utility

The satisfaction or pleasure a consumer obtains from consuming a good or service.

Marginal Analysis

The comparison of marginal benefits and marginal costs, where 'marginal' means 'extra'.

Marginal Benefit

The additional satisfaction or utility received from consuming an additional unit of a good or service.

Marginal Cost

The additional cost incurred from producing an additional unit of a good or service.

The Scientific Method in Economics

A process involving observation, forming and testing hypotheses, and accepting, rejecting, or modifying them to develop economic principles.

Other-Things-Equal Assumption (Ceteris Paribus)

The assumption that all factors other than those being considered are held constant; used to simplify analysis in economics.

Microeconomics

The study of the individual units that make up the economy.

Macroeconomics

The study of the economy as a whole or its aggregates.

Individual's Economic Problem

The challenge faced by individuals due to limited income and unlimited wants, requiring choices that involve trade-offs and opportunity costs, often represented by a budget line.

Budget Line

A line that indicates the various combinations of two products a consumer can purchase with a specific money income.

Society's Economic Problem

The challenge faced by society due to scarce resources, including land, labor, capital, and entrepreneurial ability, leading to choices about production.

Land (Economic Resource)

All natural resources used in the production process.

Labor (Economic Resource)

The physical and mental talents of people used in producing goods and services.

Capital (Economic Resource)

Manufactured aids used in producing goods and services (e.g., tools, machinery, factories).

Entrepreneurial Ability

The human resource that takes initiative, makes strategic business decisions, innovates, and bears risks for potential profit.

Production Possibilities Model

A model used to illustrate the production choices an economy can make, assuming full employment, fixed resources, fixed technology, and two goods.

Production Possibilities Table

A table that lists the different combinations of two products that can be produced with a specific set of resources and technology.

Production Possibilities Curve (PPC)

A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.

Law of Increasing Opportunity Costs

The principle that as the production of a particular good increases, the opportunity cost of producing an additional unit of that good also increases.

Optimal Allocation

The point where marginal benefit equals marginal cost (MB = MC), representing an efficient distribution of resources.

Unemployment and the PPC

A situation represented by a point inside the Production Possibilities Curve (PPC), indicating that an economy is not achieving its full productive capacity.

Economic Growth

An increase in the productive capacity of an economy, often resulting from more resources, improved resource quality, or technological advances, represented by an outward shift of the PPC.

Present Choices, Future Possibilities

The economic concept that current decisions about resource allocation between goods for the present and goods for the future determine an economy's future production possibilities.