Survey of Economics Vocabulary Review

Vocabulary and principles based on O’Sullivan & Sheffrin's Survey of Economics lecture notes coverage of basic economic definitions, principles, and the production possibilities curve.

Economics

The study of the choices made by people who are faced with scarcity.

Scarcity

A situation in which resources are limited and can be used in different ways.

Production Possibilities Curve (PPC)

A curve showing the possible combinations of goods and services available to an economy, when resources are fully and efficiently employed.

Normative Economics

Analysis that answers the question, what ought to be?

Positive Economics

Analysis that answers the questions, what is or what will be.

Self-interest

The assumption that people act in their own interest, without considering the impacts of their actions on other people.

Informed decisions

The assumption that people, including consumers and producers, make informed decisions.

Ceteris paribus

A Latin phrase meaning "other things being equal," used to explore the relationship between two variables by assuming other variables do not change.

Variable

A measure of something that can take on different values.

Marginal Principle

The guideline to increase the level of an activity if its marginal benefit exceeds its marginal cost, but reduce the level if the marginal cost exceeds the marginal benefit.

Marginal benefit

The extra benefit resulting from a small increase in some activity.

Marginal cost

The additional cost resulting from a small increase in some activity.

Principle of Opportunity Cost

The concept that the cost of something is what you sacrifice to get it, considering only the next best choice.

Microeconomics

The study of the choices made by consumers, firms, and government, and how these decisions affect the market for a particular good.

Macroeconomics

The study of the nation’s economy as a whole.

Principle of Diminishing Returns

The rule that if output is produced with two or more inputs and one input is increased while holding the others fixed, the output will eventually increase at a decreasing rate.

Total Product Curve

A curve showing the relationship between the quantity of Labor and the quantity of output.

Spillover Principle

A principle regarding goods where the costs or benefits are not confined to the person or organization that decides how much of the good to produce or consume.

Externality

Another word for spillover, which occurs when people external to a decision are affected by it.

Positive externality

A situation where the production or consumption of a good generates benefits that are not confined to the producer or the consumer.

Negative externality

A situation where the production or consumption of a good generates costs, such as pollution, that are not confined to the producer or the consumer.

Reality Principle

The concept that what matters to people is the real value or purchasing power of money or income, not its face value.

Nominal value

The face value of a sum of money.

Real value

The value of a sum of money in terms of the quantity of goods the money can buy.