Intro to Econ: Unit 1

Economics

The science of scarcity and the study of choices.

Scarcity

Unlimited wants but limited resources.

Microeconomics

The branch of economics that studies individuals and small economies.

Macroeconomics

The branch of economics that studies nations and large economies.

Utility

Satisfaction derived from the consumption of goods and services.

Marginal

Additional benefit or cost from consuming one more unit.

Allocate

To distribute resources among various uses.

Trade-offs

Alternatives that are forgone when one option is chosen.

Opportunity Cost

The most desirable alternative given up as a result of a decision.

Factors of Production

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

Traditional Economy

An economic system based on customs and traditions.

Centrally-Planned Economy

An economic system where the government makes all economic decisions.

Free Market Economy

An economic system with minimal government involvement; resources are owned by individuals.

Mixed Economy

An economic system combining elements of both free markets and government planning.

Invisible Hand

Concept by Adam Smith that self-interest guides resources to their most efficient use.

Production Possibilities Curve (PPC)

A graph that shows the alternative ways an economy can use its scarce resources.

Productive Efficiency

Producing goods and services in the least costly way.

Allocative Efficiency

Producing the most desired products by society.

Constant Opportunity Cost

When resources are easily adaptable to produce either good, resulting in a straight PPC.

Law of Increasing Opportunity Cost

As production of a good increases, the opportunity cost will also increase.

Absolute Advantage

The ability of a producer to produce the most output or require the least input.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another producer.

Law of Diminishing Marginal Utility

Satisfaction decreases as more of a good is consumed.

Utility Maximizing Rule

Consumers should spend their money so that the marginal utility per dollar is equal across all goods.