Economics Chapter 1- What is Economics?

economics

the common-sense science of how and why people, businesses, and governments make the choices they do

scarcity

limited resources

examples- hours in a day, dollars in circulation, and barrels of oil on the earth

economic cost

the value people place on a good or service that determines the price of the good or service

economic good

goods that bear a positive economic cost

examples- waterbottle, car, pencil

economic service

services that bear a positive economic cost

examples- dentist and mechanic

nuisance good

goods that a consumer pays to have removed that bear a negative economic cost

examples- discarded cardboard containers, garbage, and sewage

free good

a good with a price tag of zero

examples- air and water

free service

a service with a price tag of zero

example- wind on a windmill and rushing stream on a water wheel

intrinsic value

principle that says that a thing is valuable because of the nature of the product such as its scarcity or the amount of labor and natural resources that goes into its production

example-diamons

subjective value

principle that states that an object’s usefulness to the buyer is what determines its worth

example- a thirsty person needing water

utility

economic word for usefulness

util

economic term/unit for an imaginary unit of satisfaction

microeconomics

deals with choices made by individual units: individual people, households, or business firms

examples- what causes a person to save money? how does one business firm set its prices?

macroeconomics

examines large-scale economic choices and issues

examples-what causes bank interest rates to rise and fall?

positive economics

the approach of observing economic choices and predicting economic events

examples-an economist studying the daily stock market reports of two businesses

normative economics

refers to making value judgments about existing or proposed economic policies; deals with the way things should be as opposed to the way they are

examples- “everyone should save 10% of his income”, “the government must get out nation back to being a major producer of the world’s goods”

opportunity benefit

the satisfaction you receive from the choice you make

opportunity cost

the satisfaction you give up or the regret you experience for not choosing differently