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scarcity
limited resourcesrelative to unlimited wants, necessitating choices
resources (factors of production)
Land, Labor, Capitol, and Entrepreneurship
Mircoeconomics
the study of inidivdual parts of the overall economy
Macroeconomics
big pitcure themes such as infaltion, unemployment, gross dometic product, and how the government interacts with the economy.
Free Market Economy
Capitalism, Free-enterprise, less government control, in the hands of individuals and businesses
Command Economy
An economic system where the government makes all economic decisions, including production, investment, prices, and incomes; more government control
Incentives
Factors that motivate individuals or businesses to act in a certain way, influencing their choices and behaviors in the economy
Trade-offs
Involves giving up one option in favor of another when making decisions, as resources are limited.
Opportunity Cost
Scarcity of reasources forces people to make choices, This is the reuslt of those choices. Highest valued Alternative that must be sacrificed when making a choice
Opportunity Set
When you have your choices narrowed down to two. The set of all possible combinations of goods and services that a consumer can purchase given their budget constraints.
Opportunity benefit
What you choose; to gain from a decision, representing the value of the next best alternative that was not chosen.
Marginal Thinking
the additional unit of a good that has different benefits, incentives, and costs than the previous unit. It involves evaluating the additional benefits and costs of consuming one more unit of a good or service.
Trade
The exchange of goods and services between parties, often involving a mutual agreement on value.
Positive Economics
Information that can be verified
Normative analysis
opinions
Economic Freedom
freedom of individuals and other economic actors to answer the basic economic questions and operate in their own self-interest
Economic Effeiency
Using resources in their most efficient way so as to maximize production and employment
Economic Equity
Fairness in economic opportunity and participation; ensuring competition
Economic Security
preventing outside forces from manipulating or sabotaging the economy; protecting resources; managing the money supply
Economic Stability
maintaining a stable economy that is free from widely fluctuating depressions, panics, crashes, or currency failures.
Economic Growth
maintaining steady increases in real GDP per capita.
Nominal rate of interest
percentage; the price paid for the use of money (current price/value)
Real rate of interest
percentage; the inflation-adjusted value (price/value adjusted for inflation)
Nominal GDP
amount of output our economy produces in one year measured in current dollars
Real GDP
amount produced in one year adjusted for inflation
Ceteris Paribus
“holding all else constant”/ “other things being equal”; Holding variables not accounted for in the model constant
Capital
tools used in production: financial/real =money; or physical
Investment
purchase of real capital
Allocative Efficiency
Production mix maximizes the beneifits to society
Productive Efficiency
When the only way to increase the production of one good comes at the expense of another.
Recession/Contraction
Period of economic decline. Productive efficiency isn’t being met, and the economy is producing INSIDE the curve, there is unemployment of resources
Expansion/Recovery
Period within the cycle inwhich real GDP is increasing
Law of Diminishing Returns
When there is a diminishing increase in output as captial is added (curve flattens out as it increases).
Law of Increasing Cost
bowed out PPC
Law of Increasing Relative Cost
refers to the increasing opportunity cost of production that occurs as you move along the production curve.
Consumer Goods
good produced for current consumption (food, housing, clothing, entertainment)
Capital Goods
goods that help produce other valuable goods (building factories, roads, machinery, computers)
Real Investment
using reasources to make new capital
Absolute Advantage
an entity can absolutely produce more of a good or service than any other entity
Comparitive Advantage
calculation of the lowest opportunity cost; who can produce a good or service less expensively, or more productively, in terms of another good.
Terms of Trade
the price at which trade occurs
Tariffs
taxes on imported goods
Quota
limits on imported goods
Regulations
impose strict rules on imported goods
Money
currency + demand deposits
Currency
Cash money: paper notes, coin
Medium of Exchange
Spending; any assest that sellers are willing to accept as payment for goods and services; “something in the middle”
Commodity Money
(limited/ double purpose/ ineffiecent); Money that is an actual physical commonidty such as gold, silver, or tabacoo, limits inlfation
Commonidty-Backed Money
Money that can be exchanged for a commodity at a fixed rate; value of commoidity=value of money
Fiat money
(has no other use than as money); no value execpt as medium of echange; no intristie value; comes from government mandate
Unit of Account
Pricing; using money to measure value, price or worth
Store of Value
Saving; storing wealth from one pt to another holds up to inflation (ex. saving for something)
M1
spending money; =Currency + Demand Deposits + savings accounts; accesible and spendible
M2
M1 + small time deposits + money market funds
Inflation
A general increase in price level; expressed as percentage change in the previous year’s price level
Real Income
Measure the purchasing power of a change in income (nominal wage increase - inflation = rage wage increase)
Real Interest
measures the rate of interest after inflation rate is removed; (nominal interest rate - aniticpated inflation rate = return)
Discount Rate
% of DD which cannot be loaned
Reserve Requirement
% of DD which cannot be loaned
MS
Currency + Checkable Deposits
TR (total Reserves)
RR + ER
MM (money multipler)
1/ .RR
dMS (Change in money supply)
MM x ER
dMS Bonds (change in money supply regarding bond sales and purchases)
= MM x $ Value of Bonds
3 Economic Questions
What to Produce? How to Produce? For whom to produce?
