Chapter 1: Limits, Alternatives, and Choices

Vocabulary flashcards covering key concepts from the lecture notes on the economic perspective, scarcity, opportunity costs, and the production possibilities framework.

Economics

A social science concerned with making optimal choices under scarcity; economic wants exceed society’s productive capacity.

Scarcity

Limited resources require choices to be made.

Opportunity Cost

The next-best alternative forgone when a choice is made; there is no free lunch.

Marginal Analysis

The comparison of marginal benefits and marginal costs, usually for decision making; marginal means extra or additional.

Economic Perspective

A view that rational decision making involves comparing benefits and costs, considering scarcity, opportunity costs, and marginal analysis.

Purposeful Behavior

Rational, goal-oriented actions aimed at increasing utility (individuals) or profit (firms).

Rational Self-Interest

The assumption that individuals act to maximize their own satisfaction or payoff.

Utility

Satisfaction or benefit derived from a choice or action.

Microeconomics

The study of the individual consumer, firm, or market.

Macroeconomics

The study of the entire economy or a major aggregate.

Positive Economics

Economic statements that are factual and testable.

Normative Economics

Economic statements that involve value judgments.

Economizing Problem

Limited income and unlimited wants requiring choices, trade-offs, and consideration of opportunity costs.

Budget Line

A line showing attainable combinations of two goods given income and prices; distinguishes attainable vs unattainable combinations.

Attainable

On or below the budget line; feasible given income and prices.

Unattainable

Above the budget line; not feasible with current income and prices.

Land

Natural resources used in the production process.

Labor

Physical actions and mental activities that people contribute to production.

Capital

Manufactured aids used in production; investments.

Entrepreneurial Ability

The special human resource that combines resources, takes initiative, and bears risk.

Functions of Entrepreneurs

Employ the other factors of production, take initiative, make strategic decisions, innovate, and take risks.

Production Possibilities Model

An economic model showing the different combinations of two goods that an economy can produce with fixed resources and technology.

Consumer Goods

Goods produced for present consumption and immediate use.

Capital Goods

Goods used to produce other goods and services (investment goods).

Production Possibilities Curve

A graph illustrating the maximum feasible combinations of two goods given resources and technology; typically bowed outward due to increasing opportunity costs.

Increasing Opportunity Costs

As more of a particular good is produced, its marginal opportunity costs increase; PPC is concave.

Marginal Benefit

The additional benefit received from producing or consuming one more unit.

Marginal Cost

The additional cost incurred from producing or consuming one more unit.

MB = MC

The condition at which marginal benefit equals marginal cost, indicating optimal output.

Economic Growth

An outward shift of the production possibilities curve, indicating increased capacity to produce.

Specialization

Focusing resources on a limited set of activities to increase efficiency and total production.

Present Choices, Future Possibilities

Concepts/graphs illustrating trade-offs between current (present) and future production; often shown with separate curves for present and future goods.