Chapter 1: Limits, Alternatives, and Choices

Economics

Social science of how individuals, institutions, + society make choices under scarcity

Opportunity cost

Value of the good, service, or time forgone to obtain something else

Economic perspective

Economic way of thinking

Utility

Pleasure/happiness/satisfaction from consuming good/service

Marginal analysis

Comparisons of marginal benefits + marginal costs for decision making

Economic principle

Widely-accepted theory; statement about economic behavior that allows for predictions of effects of certain actions

Other-things-equal assumption

Assumption that factors other than those being considered do not change

Microeconomics

Concerned w/ individual units (person, household, firm, industry)

Macroeconomics

Examines either the entire economy or basic aggregates (gov’t, business sectors)

Aggregate

Collection of specific economic units treated as 1 unit

Positive economics

Facts + cause-and-effect relationships

Normative economics

Value judgements about what the economy SHOULD be like

Economizing problem

Need to make choices because economic wants exceed economic means

Budget line

Schedule or curve that shows various combos of 2 products that can be purchased with specific money income

Economic resources

All natural, human, manufactured resources used for production of goods and services

Land

All natural resources

Labor

Physical + mental talents of individuals used in production

Capital

All manufactured aids used in production (ex. tools, machinery, etc.)

Entrepreneurial ability

Strategic business decisions, innovation, strategically combining resources, etc.

Consumer goods

Products that satisfy wants directly

Capital goods

Products that satisfy wants indirectly

Production possibilities curve

Graph that shows different combos of goods + services that can be produced in fully employed economy

Law of increasing opportunity costs

As production of a good increases → Opportunity cost of producing an additional unit rises

Economic growth

Growth of economic capacity; larger total output