MACROECONOMICS

Economic Perspective

a viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.

Economics

the social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

Scarcity

the limits places on the amounts and types of goods/services available for consumption as the result of there being only limited economic resources from which to produce output. It is the fundamental economic constraint that creates opportunity costs and that necessitates the use of marginal analysis to make optimal choices.

Opportunity Cost

the amount of other products that must be foregone or sacrifice to produce a unit of a given product.

Utility

the want-satisfying power of a good/service; the satisfaction a consumer obtains from the good/services’ consumption.

Marginal Analysis

the comparison of marginal benefits and marginal costs, usually for decision making

Scientific Method

the procedure for the systematic pursuit of knowledge involving observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws.

Economic Principle

a widely accepted generalization about the economic behavior of individuals or institutions.

other-things-equal assumption

the assumption that factors other than those being considered are held constant. AKA the ceteris paribus assumption.

microeconomics

the part concerned 1) the decision making by individual units such as a household, a firm, or an industry and 2) individual markets, specific goods/services, and product and resource prices

macroeconomics

concerned with the performance and behavior of the economy as a whole. it focuses on economic growth, the biz cycle, interest rates, inflation, and the behavior of major economic aggregates such as the household, business, and government sectors.

aggregate

a collection of specific economic units treated as if they were one unit

positive economics

the analysis of facts or data to establish scientific generalizations about economic behavior

normative economics

the part of econ involving value judgments about what the economy should be like; focused on which economic goals/policies should be implemented; policy economics.

economizing problem

the choices necessitated because society’s economic wants for goods/services are unlimited but the resources available to satisfy these wants are scarce

budget line

a line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products’ prices.

economic resources

the land, labor, capital and entrepreneurial ability that are used to produce goods/services (factors of production)

land

refers to any and all natural resources (“free gifts of nature”) that are used to produce goods and services.

labor

any mental or physical exertion on the part of a human being that is used in the production of a good/service.

capital

man-made physical objects (factories/roads) and intangible ideas (the recipe for cement) that do not directly satisfy human wants but which help to produce goods/servces that do satisfy human wants.

investment

expenditures that increase the volume of physical CAPITAL (roads, factories, wireless networks) and intangible ideas (formulas processes, algorithms) that help to produce goods/services

consumer goods

Products and services that satisfy human wants directly

entrepreneurial ability

The human resource that combines the other economic resources of land, labor, and capital to produce new products/innovations in the production of existing products; provided by entrepreneurs

entrepreneurs

Individuals who provide entrepreneurial ability to firms by setting strategy, advancing innovations, and bearing the financial risk if their firms do poorly

factors of production

The 4 economic resources: land, labor, capital, and entrepreneurial ability

production of possibilities curve

A curve showing the different combos of 2 goods/services that can be produced in a FULL-EMPLOYMENT, FULL-PRODUCTION economy where the available supplies of resources and technology are FIXED

law of increasing opportunity costs

The principle that as the production of a good increases the opportunity cost of producing an additional unit rises

economic growth

An outward shift in the PP curve that results from an increase in resources supplies OR quality OR an improvement of technology; 2) an increase of real output (GDP) or real output per capita