Intro to Econ terms

Economics

#1 The science that deals with the production, distribution, and consumption of goods and services, or the material welfare of humankind.

#2 The study of how people choose to use their limited resources to satisfy their unlimited wants.

Microeconomics

the study of the economic behavior and decision making of small units, such as individuals, families, and businesses

Macroeconomics

The study of the economy as a whole

Adam Smith

argued against mercantilism with his 1776 publication of The Wealth of Nations. He argued that foreign trade strengthens the economies of both countries involved, as long as each trading partner specializes in what it produces best, giving it a comparative advantage. He also explained that a government that put business ahead of its people would not last.

Laissez Fare

French phrase meaning "let do/let it be."

A doctrine opposing governmental interference in economic affairs beyond the minimum necessary to maintain peace and property rights.

Comparative Advantage

the ability to produce a good at a lower opportunity cost than another producer

-trade will still occur even if one country has an absolute advantage in all products.

Absolute Advantage

A person or nation can produce more of something than another person or nation using the same amount of resources

Positive economics

refers to the objective analysis in the study of economics.

- Does not provide advice or instruction.

(based on facts and data available at the present time and can be proven true or false)

ex: inflation rate, housing market statistics, consumer spending

Normative economics

Aims to determine what should happen or what ought to be.

-Expresses ideological judgments about what may result in economic activity if public policy changes are made.

(based on opinions and theories and cannot be proven true or false.)

ex: "The government should offer basic healthcare to all people"

! Equity efficiency trade off

Occurs when maximizing the productive efficiency of the market leads to less equitable outcomes.

Scarcity

The natural phenomenon arising from the fact that all the world's resources are physically limited in quantity.

The result when people

have limited resources...

... and unlimited wants.

Trade-off

The exchange of one benefit or advantage for another that is thought to be better. Ex: spending money on a vacation means sacrificing the opportunity to save that money for a future purchase or investment.

Opportunity cost

The most desirable alternative given up as the result of a decision. Ex: A farmer chooses to plant wheat; the opportunity cost is planting a different crop, or an alternate use of the resources

Production possibility curve

PPC- represents all of the different combinations of two goods that can be produced; the PPC captures scarcity of resources and opportunity costs.

The Wealth of Nations (1776)

Adam Smith , capitalism, lazzie faire, "invisible hand"

Invisible Hand Theory

A truly free, competitive market - operating with limited government intervention would bring about the greatest good for society as a whole.

Law of Comparative Advantage

Each person should produce the good for which there is a lower opportunity cost than other producers

Protectionism

the theory or practice of shielding a country's domestic industries from foreign competition by taxing imports.

Incentives

Something that incites or tends to incite to action or greater effort.

Central to the study of all economic activity (decision-making, cooperation, and competition among individuals and groups).