Unit 1 Econ

Economics

The study of how people choose to use their unlimited wants.

Economy

1. A system used to manage limited resources for the production, distribution, and consumption of goods and services.

Positive Economics

The branch of economics that uses objective analysis to find out how the world works. The goal is to describe how things are.

Normative Economics

1. The branch of economics that applies value judgments to data in order to recommend actions or policies. The goal is to advice how things ought to be done.

Scarcity

The condition that results because peaple have limited resources but unlimited wants.

Trade off

The exchange of one benefit ar advantage far another that's thought to be better.

Cost-Benefit Analysis

A way to compare the costs of an action with the benefits of that action. If benefits exceed costs, then the action is worth taking.

Incentive

Any factor that encourages or motivates a person to do something. Prices, taxes, and laws create incentives that influence how people behave.

Goods

1. Physical articles that have been produced for sale or use. Three examples are food, clothing, and cars.

Services

Work done by someone else for, which a consumer, business, or government is wiling to pay. Three examples are teaching, gardening, and childcare.

Factors of Production

The resources used to produce goods and services. Economists define these resources as land, labor, and capital.

Entrepreneurship

The willingness and ability to take the risks involved in starting in managing a business.

Capital

The tools, machines, and buildings used to produce goods and services.

Productivity

A measure of the efficiency with which goods and services are produced. Productivity is often stated as the quantity produced per person per hour.

Opportunity Cost

The value of the next best alternative that’s given up when making a choice. This is the measure of what you must give up when you make a decision.

Production Possibilities Frontier (PPF)

A simple model of an economy that shows all the combinations of two goods that can be produced with the resources and technology currently available.

Economic Equity

The fairness with which an economy distributes its resources and wealth.

Economic System

A society's way of coordinating the production and consumption of goods and services.

Traditional Economy

An economic system in which decisions about production and consumption are based on custom and tradition.

Command Economy

An economic system in which decisions about production and consumption are made by a powerful ruler or government.

Market Economy

An economic system in which decisions are left up to individual producers and consumers.

Factor Payment

Income earned when an individual sells or rents a factor of production that he or she owns. Wages are factor payments made to workers in exchange for their labor.

Mixed Economy

An economic system in which both the government and individuals play important roles in production and consumption. Most modern economies are mixed economies.

Free Enterprise System

An economic system in which the means of production are mostly privately owned and operated for profit.

Specialization

The development of skills or knowledge in one aspect of a job or field of interest. People who specialize become expert in a particular activity.

Division of Labor

The allocation of separate tasks to different people. Division of labor in the production of a good or service is based on the principle of specialization.

Voluntary Exchange

The act or willingly trading one item or service for another. Both parties in a voluntany exchange expect to gain from it.

Barter

The direct exchange of goods or services without the use of money. Barter is typical in traditional economies.

Money

A generally accepted medium of exchange that can be traded for goods and services or used to pay debts. Money is critical in a market economy.

Economic Interdependence

The characteristic of a society in which people rely on others for most of the goods and services they want. This interdependence results from specialization and trade.

Absolute Advantage

The condition that exists when someone can produce a good or service using fewer resources than someone else.

Comparative Advantage

The condition that exists when someone can produce a good or service at a lower opportunity cost than someone else.