Chapter 1 Vocabulary: The Art and Science of Economic Analysis (McEachern Economics 11e, Ch. 1)

A set of vocabulary-focused flashcards covering core concepts from Chapter 1 of McEachern’s Economics 11e. Terms and definitions summarize scarcity, resources, markets, decision making, and the scientific approach to economic analysis.

Scarcity

The condition that resources are limited relative to wants, forcing people to choose among alternatives.

Economics

The study of how people use scarce resources to satisfy unlimited wants.

Resources (factors of production)

Inputs used to produce goods and services: labor, capital, natural resources, and entrepreneurial ability.

Labor

Physical and mental effort used to produce goods and services; wages are payments for labor.

Wages

Payment to resource owners for their labor.

Capital

Buildings, equipment, and other produced inputs used to produce goods and services; interest is the payment for using capital.

Interest

Payment to owners for the use of their capital.

Physical capital

Tangible produced means used to produce goods and services (e.g., buildings, equipment).

Human capital

Knowledge and skills people acquire to increase productivity.

Natural resources

Gifts of nature used to produce goods and services; can be renewable or exhaustible; rent is payment for their use.

Renewable resource

Resource that can be drawn on indefinitely if used conservatively.

Exhaustible resource

Resource that does not renew itself and is available in a limited amount.

Rent

Payment to resource owners for the use of natural resources.

Entrepreneurial ability

Talent to dream up new products or find better ways to produce; profit is the reward for this ability.

Profit

Reward for entrepreneurial ability; total revenue minus resource costs.

Entrepreneur

Profit-seeking decision maker who starts with an idea, organizes an enterprise, and bears risk.

Good

Tangible product used to satisfy human wants.

Service

Activity or intangible product used to satisfy human wants.

Bads

Undesirable items that we would want none of, not even at a zero price.

Market

Set of arrangements by which buyers and sellers exchange goods and services on mutually agreeable terms.

Product market

Market in which a good or service is bought and sold.

Resource market

Market in which resources (inputs) are bought and sold.

Circular-flow model

Diagram tracing the flow of resources, products, income, and revenue among economic decision makers.

Households

Decision makers that demand goods and services and supply resources.

Firms

Decision makers that demand resources and produce goods and services.

Rational self-interest

Idea that individuals act to maximize benefits given costs, often leading to helping others when the personal cost is low.

Time and information

Scarce and valuable resources; rational decisions require time and information, and people may pay for additional information.

Marginal

Incremental or additional; the effect of a one-unit change.

Marginal analysis

Comparison of expected marginal benefits and marginal costs to decide on actions.

Microeconomics

Study of the economic behavior in particular markets and individual choices.

Macroeconomics

Study of economy-wide behavior and performance, including growth, unemployment, and inflation.

Economic theory / model

A simplified representation of reality used to make predictions about cause and effect.

Positive economic statement

Can be proved or disproved by facts; describes 'what is'.

Normative economic statement

Expresses an opinion about what ought to be; cannot be proven solely by facts.

The Scientific Method

A four-step process: identify question, specify assumptions, formulate a hypothesis, and test the hypothesis to build a predictive theory.

Variable

A measure that can take on different values at different times.

Ceteris paribus (Other-things-constant)

Assumption that all other variables are held constant to focus on the relation between key variables.

Hypothesis

A theory or educated guess about how key variables relate, used to make predictions.

Test the hypothesis

Compare predictions with evidence and decide whether to reject, modify, or support the hypothesis.