Economics Unit 1: Principles of Economic Thinking

Economics Terminology I'm supposed to learn

Economics

The study of how individuals choose to use limited resources to fulfill unlimited needs and wants.

Microeconomics

The branch of economics that studies decision making of individuals and businesses and how they allocate scarce resources.

Macroeconomics

A branch of economics that studies the behaviour, structure, and performance of an entire economy on a large scale.

Scarcity

A permanent condition that creates the fundamental problem of having unlimited human wants and needs in a world with limited, finite resources.

Allocative Methods

Ways to determine who gets scarce resources in a way that maximizes overall societal satisfaction and economic welfare.

Voting

Vote for who gets scarce resources.

Random

Randomly decide who gets scarce resources

First come, first served

Getting scarce resources, services or attention in the exact order that individuals arrive or ask

Fiat

An authority decides who gets scarce resources.

Personal Characteristics

Who gets scarce resources based on a person’s physical attributes

Performance-based

Who gets scarce resources based on skill, knowledge, ability.

Willingness and ability to pay

A consumer’s desire to purchase a good or service combined with the financial means to actually completely the transaction.

Scarcity Force Trade-Offs

An economic principle stating that people, businesses, and governments must make choices that require giving up goods and services to get other goods and services

Costs Versus Benefits

An economic principle stating that decisions you make require a sacrifice (cost) to get things you want (beneifts)

Thinking at the Margin

An economic principle that states choices are made by comparing the extra benefits and extra costs of a small change.

Incentives Matter

An economic principle that states people respond to rewards and punishments to change their behavior.

Trade Makes People Better Off

An economic principle that states voluntary exchange allows everyone to specialize and gain higher total value.

Markets Coordinate Trade

An economic principle that states prices and decentralized interactions guide the allocation of goods and resources efficiently.

Future Consequences Count

An economic principle that states decisions today create ripple effects and costs or benefits that emerge over time.

Goods

Physical, tangible objects that satisfy people's wants or needs

Services

Actions or work that someone does for someone else in exchange for payment

Shortage

A temporary or long-term situation where the quantity demanded for a good or service is greater than the quantity supplied available in the market.

Land

All natural resources used to create goods and services, including the actual ground, water, oil, forests, and minerals.

Labor

The physical and mental effort that people put into doing tasks for which they are paid. [1]

Capital

Any human-made resource or tool that is used to produce other goods and services.

Human Capital

The tangible, man-made objects used to make other products, such as buildings, machinery, tools, and factories.

Physical Capital

The specialized knowledge, skills, and experience that workers gain through education and training to make them more productive.

Opportunity Cost

The most desirable alternative or value that you give up when you make a choice or decision.

Economic Goals

Primary targets that societies and governments strive to achieve to manage limited resources and improve living standards.

Economic Freedom

Individuals and businesses make their own choices in the marketplace with little government control. This includes choosing careers, buying products, or starting companies.

Economic Efficiency

Society uses its scarce resources wisely to maximize output and avoid waste. It ensures the greatest benefits at the lowest costs. [1, 2]

Economic Equity

Fair and just distribution of wealth, income, and economic opportunity. It focuses on fairness in market policies and outcomes.

Economic Growth

Increasing the production of goods and services over time. This raises a society's overall standard of living.

Economic Security

Protecting citizens from unpredictable hardships like job loss, illness, or extreme poverty. Governments often provide a safety net for vulnerable people.

Economic Stability

Maintaining steady growth and predictable prices without major economic crashes. It keeps inflation low and employment steady.

What goods and services should be produced?

How should these goods and services be produced?

Who will consume the goods and services?