Economics: The Core Issues Flashcards

Vocabulary terms and definitions covering the core principles of introductory economics, including resource allocation, production possibilities, market systems, and economic analysis methods.

Economics

The study of how best to allocate scarce resources among competing uses.

Scarcity

The lack of enough resources to satisfy all desired uses of those resources.

Factors of Production

The resources used to produce goods and services; specifically land, labor, capital, and entrepreneurship.

Land

All natural resources, such as crude oil, water, air, and minerals.

Labor

The skills and abilities to produce goods and services, including both the quantity and quality of human resources.

Capital

Final goods produced for use in the production of other goods, such as equipment and structures.

Entrepreneurship

The assembling of resources to produce new or improved products and technologies.

Opportunity Cost

The most desired goods or services that are foregone in order to obtain something else.

Production Possibilities

The alternative combinations of final goods and services that could be produced in a given period with all available resources and technology.

Production Possibilities Curve

A graphic illustration of the trade-offs between different mixes of output, representing scarce resources and opportunity costs.

Law of Increasing Opportunity Cost

The principle that we must give up ever-increasing quantities of other goods and services in order to get more of a particular good.

Efficiency

Getting maximum output of a good from the resources used in production; represented by points on the production possibilities curve.

Inefficiency

Producing inside the production possibilities curve, meaning actual output is less than potential output.

Economic Growth

An increase in output and an expansion of production possibilities, often caused by increased labor or technological advancement.

Invisible Hand

Adam Smith's term describing how markets work to determine what gets produced, how, and for whom.

Market Mechanism

The use of market prices and sales to signal desired outputs or resource allocations.

Laissez-faire

The doctrine of nonintervention by government in the market mechanism.

Mixed Economy

An economy that uses both market signals and government directives to allocate goods and resources.

Market Failure

An imperfection in the market mechanism that prevents optimal outcomes.

Government Failure

Government intervention that fails to improve economic outcomes or makes them worse.

Normative Analysis

Analysis that incorporates subjective judgments about what ought to be done.

Positive Analysis

Analysis that focuses on how things might be done without subjective judgments of what is best.

Macroeconomics

The study of aggregate economic behavior and of the economy as a whole.

Microeconomics

The study of individual behavior in the economy and the components of the larger economy.

Ceteris Paribus

The assumption of nothing else changing, used to simplify models and make predictions.