Econ Quiz 1

Economics

A social science that examines how people choose among the alternatives available to them

Scarcity

A condition in which people attempt to meet unlimited wants with limited resources

Scarce good

A good for which the choice of one alternative requires that another be given up

Free good

A good for which the choice of one use does not require that another be given up

Economy

Any organization that produces goods and services and then allocates them to people for use

Opportunity Cost

The Value of the best alternative forgone in making any choice (what you give up)/(what you get)

Margin

The current level of an activity

Choice at the margin

A decision to do a little more or a little less of something

Microeconomics

The branch of economics that focuses on the choices made by consumers and firms and the impacts those choices have on individual markets

Macroeconomics

The branch of economics that focuses on the impact of choices on the total, or aggregate, level of economic activity

Variable

Something whose value can change

Constant

Something whose value does not change

Scientific Method

A systematic set of procedures through which knowledge is created

Hypothesis

An assertion of a relationship between two or more variables that could be proven to be false

Theory

A hypothesis that has not been rejected after widespread testing and that wins general acceptance

Law

A theory that has been subjected to even more testing and that has one virtually universal acceptance

Model

A set of simplifying assumptions about some aspect of the real world

Ceteris Paribus

A Latin phrase that means, “all other things unchanged”

Independent Variable

A variable that causes or induces a change in another variable

Dependent Variable

A variable that responds to change

Fallacy of false cause

The incorrect assumption that one even causes another because the two events tend to occur together

Positive statement

A statement of fact or a hypothesis

Negative statement

A statement that makes a value judgement

Production Possibilities Model

A model that shows the goods and services that an economy is capable of producing - it’s opportunities- given the factors of production and the technology it has available

Economic system

The set of rules that define how an economy’s resources are to be owned and how decisions about their use are to be made

Factors of Production

The resources available to the economy for the production of goods and services

Utility

The value, or satisfaction, that people derive from the goods and services they consume and the activities they pursue

Labor

The human effort that can be applied to the production of goods and services

Capital

A factor of production that has been produced for the use in production of other goods and services

Natural Resources

The resources of nature that can be used for the production of goods and services

Human Capital

The knowledge and skills people accumulate through experience, education, and training

Financial Capital

Forms of funding including other “paper” assets (such as stocks and bonds) that represent claims on future payment

Technology

Knowledge that can be applied to the production of goods and services

Entrepreneur

A person who, operations within the context of a market economy, seeks to earn profits by finding new ways to organize the factors of production

Production Possibilities Curve

A graphical representation of the alternative combinations of goods and services an economy can produce

Comparative Advantage

In producing a good or service, the situation that occurs if the opportunity cost of producing that good or service is lower for that economy than for any other

Law of increasing opportunity cost

As an economy moves along its production possibilities curve in the direction of producing more of a particular food, the opportunity cost of additional units of that good will increase

Full employment

Situation in which all the factors of production that are available for use under current market conditions are being utilized

Efficient production

When an economy is operating on its production possibilities frontier

Inefficient production

When a company is using the same quantities of factors of production but is operating inside its production possibilities curve

Specialization

Situation in which an economy is production the goods and services in which it has a comparative advantage

Economics Growth

An increase in the productive ability of an economy, represented by outward shift in an economy’s production possibilities curve

Market capitalist economy

Economy for which resources are generally owned by private individuals who have the power to to make decisions about their use

Command socialist economy

Economy in which government is the primary owner of capital and natural resources and has broad power to allocate the he use of factors of production

Mixed Economy

Economy that combines elements of market capitalist and command socialist economic systems