ECO 2013 Chapter 1 IRSC

economics

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

economic perspective

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

This approach emphasizes tradeoffs and opportunity costs, often contrasting with political or social views

scarcity

The limits placed on the amounts and types of goods and services available for consumption as the result of there being only limited economic resources

opportunity costs

The amount of other products that must be forgone or sacrificed to produce a unit of a given product.

utility

The want-satisfying power of a good or service

marginal analysis

The comparison of marginal (“extra” or “additional”) benefits and marginal costs,

Example
If producing one more widget costs $10 (marginal cost) but brings in $15 in revenue (marginal revenue), the marginal profit is $5. Because this is positive, the company should produce that unit

scientific method

The procedure for the systematic pursuit of knowledge involving the 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-than-equal assumption

all other relevant factors remain unchanged

Examples in Economics:

• Demand: If income increases, the quantity demanded of a product will rise, ceteris paribus.

• Supply: If the cost of production decreases, a company will supply more of a good, ceteris paribus.

• Wages: If the minimum wage rises, employment may decrease, ceteris paribus

microeconomics

The part of economics concerned with

(1) decision-making by individual units such as a household, a firm, or an industry

(2) individual markets, specific goods and services, and product and resource prices.

macroeconomics

part of economics concerned with the performance and behavior of the economy as a whole. Focuses on economic growth, the business cycle, interest rates, inflation, and the behavior of aggregates

aggregate

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

the summation of individual economic variables—such as households, firms, or specific markets—into economy-wide totals

positive economics

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

-can be supported or disproven

normative economics (policy economics)

The part of economics focused on is which economic goals and policies should be implemented

-subjective

economizing problem

The choices are necessitated because society’s economic wants for goods and services are unlimited, but the resources are scarce

-limited income and unlimited wants

-Resources (land, labor, capital, entrepreneurial ability) are insufficient to produce all goods and services desired.

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 (factors of production)

The and labor, capital, and entrepreneurial ability that are used to produce goods and services

what are the four economic resources?

land, labor, capital, and entrepreneurial ability

what is 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 and services that do satisfy human wants.

consumer goods

Products and services that satisfy human wants directly.

investment

Expenditures that increase the volume of physical capital

entrepreneurial ability

The human resource that combines the other economic resources of land, labor, and capital to produce new products or make innovations in the production

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 four economic resources: land, labor, capital, and entrepreneurial ability.

consumer goods

Products and services that satisfy human wants directly.

production possibilities curve

A curve showing the different combinations of two goods or 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.