Chapter 1 (macro)

Economics

The study of how people deal with scarcity.

Scarcity

The situation in which the quantity of resources is insufficient to meet all wants.

Opportunity Cost

The value of the best alternative that was not chosen because something else was chosen.

Gains from Trade

Improvements in income, production or satisfaction owing to the exchange of goods and services.

Specialization

Concentration of production effort into a single specific task.

Division of Labor

The division of production into various parts where some workers specialize in one task, while others specialize in another task.

Comparative Advantage

A situation in which a person or group can produce one good at a lower opportunity cost than another group.

Production Possibilities Curve

A curve showing the maximum combinations of production of two goods that are possible, given the economy’s resources and technology.

Market Economy

An economy where most decisions of how, what and for whom to produce are made by individuals and firms interacting in markets.

Command Economy

An economy where most decisions of how, what and for whom to produce are made by a select group of individuals and firms that control the government.

Market Failure

Any situation in which the market does not lead to an efficient economic outcome.

Government Failure

A situation in which the government makes things worse than the market, even though there may be market failure.

Price System

The set of prices that operates in a market economy, guiding the allocation of resources based on supply and demand.

Investment Goods

Goods that are used for future production.

Consumption Goods

Goods that are used for immediate consumption.