Principles of Macroeconomics - Chapter 1 Terms

Scarcity

The condition in which human wants are forever greater than the available supply of time, goods, and resources.

Resources

The basic categories of inputs used to produce goods and services.

Factors of production

Alternative name for “resources”

Three categories of resources

Land, labor, capital

Labor

The mental and physical capacity of workers to produce goods and services.

Labor

The mental and physical capacity of workers to produce goods and services.

Entrepreneurship

The creative ability of individuals to seek profits by taking risks and combining resources to produce innovative products.

Capital

A human-made good used to produce other goods and services.

Economics

The study of how society chooses to allocate its scarce resources to the production of goods and services to satisfy unlimited wants.

Equity

Fairness in the way production is distributed among members of society.

Macroeconomics

The branch of economics that studies decision making for the economy as a whole.

Microeconomics

The branch of economics that studies decision making by a single individual, household, firm, industry, or level of government.

Model

A simplified description of reality used to understand and predict the relationship between variables.

Efficency

A situation where society is “doing the best it can” with existing resources and technology.

Ceteris paribus

A Latin phrase that means while certain variables change, “all other things remain unchanged.

Positive economics

An analysis limited to statements about “what is” that can be tested and determined to be true or false.

Normative economics

An analysis based on subjective value judgments regarding “what ought to be” that cannot be tested.

Scarcity's three questions

What goods and services to produce, how to produce those goods and services, and for whom will they be produced?