The economic way of thinking chapter 1

Wants

Something desired but not always necessary

Needs

Something that is necessary

Goods

Purchasable products sold by producers

Services

Work that one person performs for another for payment

Consumer

Someone who purchases goods and services

Producer

Someone who creates and sells goods

Incentives

Benefits offered to encourage people to act in certain ways

Utility

The benefit or satisfaction gained from the use of a good or service

Cost-benefit analysis

The practice of examining the costs and the expected benefits of a choice as an aid to decision making

Marginal Cost

The cost of using one more unit of a good or service

Marginal benefit

The benefit or satisfaction received from using one more unit of a good or service

Statistics

Numerical data or information

Microeconomics

The study of the behavior of individuals in an economy

Macroeconomics

The study of the behavior of the economy as a whole

Positive economics

Describing economics as it is rather than as it should be

Normative economics

Describing economic behavior as it should be rather than as it is

Scarcity

The main economic problem, limits producer and consumer choices

The four factors of production

Land, labor, capital, and entrepreneurship

Land

All natural resources used to produce goods

Labor

All of the human time, effort, and talent that goes into producing goods

Capital

All of the man-made resources and machinery used to produce and distribute goods

Entrepreneurship

All of the vision, skill, ingenuity, and willingness to take risks used to produce goods

Economic models

Charts, tables, graphs

Adam Smith’s views on economics

Challenged whether or not mercantilism was economically sound, believed that nations would be wealthier engaging in free trade, described his ideas as an “invisible“ hand guiding the marketplace