Intro to Econ vocab

Scarcity

exists whenever our resources are insufficient to produce all the goods and services we would like to consume

> Afflicts every country, rich or poor

Opportunity Cost

What you give up when you make a choice (i.e. the second best option). The value of the forgone opportunity or the “true cost".

>> Presumes the choice is the best option

Microeconomics

economists study markets, firms, buyers, sellers, and workers on an individual / “micro” basis

Macroeconomics

Economists study how fast the whole economy grows, what determines unemployment and inflation rates, and what policies might affect growth, inflation, and unemployment

Greek economics

the kind most economists do. A lot of mathematics, graphs, and Greek symbols

Media economics

“up-and-down” economics. What’s reported in the press. Mostly consists of forecasts of whether the economy will go up quickly, go up slowly, or go down

Airport economics

named after the economic paperbacks one finds in airport bookstores. Focuses on the next upcoming disaster or a “new economy” that will supposedly grow faster than any other and never suffer another recession

Labor force

those with a job and those who don’t have one but would like one

Capital

factories, tools, inventories, and machines in an economy

Economic resources

labor, capital, and natural resources that can be used to produce goods and services

Sunk costs

a cost that has already been paid and cannot be recovered

Fixed costs

do not change regardless of whether one goes to college

Marginal benefit

the increase in benefits resulting from an action or the increase in benefits resulting from producing one more unit of output

Marginal cost

the increase in costs resulting from an action or the increase in costs resulting from producing one more unit of output

Decision-making rule

if the additional benefits (correctly measured) are greater than the additional costs incurred (correctly measured), go for it. If the costs exceed the benefits, do not

Production possibilities frontier

Illustrates the opportunity cost paid by an economy where it reallocates its resources to produce more of one good and less of another good. Simplifies production decision in an economy to a vhoice between two options

Inefficiency

A company fails to produce a maximum combination and obtains a point INSIDE the PPF

economic models

An abstract description of a part of an economy. Simplifying assumptions are made, with a goal of understanding and explaining the effects of economic events

Diminishing marginal returns

Increasing one input, while holding all other inputs constant, will eventually result in smaller and smaller additions to output

Economically efficient

Using all our resources in a technically and allocatively efficient manner

>> Is the entity using all of its available resources?

Technically efficient

Using methods to produce goods and services that minimize costs of producing or maximize output given available inputs (resources)

>> Is the economy using land, labor, and capital to produce as much of each good as technically possible, therefore producing as much satisfaction, enjoyment, and pleasure as possible?

Allocative efficiency

Allocating available resources to produce the kinds of goods and services that consumers want the most

>> Are we using our resources to produce the right mix of goods and services? Are we producing those things that we value the most?