Macroeconomics: Limits, Alternatives, and Choices

Economics

Social science focused on optimal choices under scarcity.

Scarcity

Limited resources against unlimited economic wants.

Opportunity Cost

Value of the next best alternative forgone.

Marginal Analysis

Comparison of marginal benefits and costs for decisions.

Economic Perspective

Viewpoint of rational decisions for self-interest.

Microeconomics

Study of individual consumers and firms.

Macroeconomics

Study of the entire economy or aggregates.

Positive Economics

Factual economic statements without value judgments.

Normative Economics

Economic statements involving value judgments.

The Economizing Problem

Limited income versus unlimited wants necessitates choices.

Budget Line

Graphical representation of attainable combinations of goods.

Factors of Production

Resources used to produce goods and services.

Land

Natural resources used in production processes.

Labor

Human effort in physical and mental activities.

Capital

Human-made resources for production, including tools.

Entrepreneurial Ability

Special human resource distinct from labor in production.

Production Possibilities Model

Shows combinations of two goods an economy can produce.

Production Possibilities Curve

Graph illustrating maximum output combinations of two goods.

Increasing Opportunity Costs

Higher production leads to increased marginal opportunity costs.

Optimal Output

Condition where marginal benefit equals marginal cost.

Economic Growth

Increase in an economy's capacity to produce goods.

International Trade

Exchange of goods and services between countries.

Specialization

Focus on producing specific goods to increase efficiency.

Common Pitfalls in Economics

Biases and fallacies that hinder sound economic reasoning.