Macroeconomics and Economic Analysis Vocabulary

Comprehensive vocabulary flashcards covering fundamental concepts, definitions, tools, graphing terms, economic systems, and quiz review terminology.

Economics

The study of how people use their scarce resources to satisfy their unlimited wants.

Resources

The inputs, or factors of production, used to produce the goods and services that people want; resources consist of labor, capital, natural resources, and entrepreneurial ability.

Labor

The physical and mental effort used to produce goods and services.

Capital

The buildings, equipment, and human skills used to produce goods and services.

Natural Resources

All gifts of nature used to produce goods and services; includes renewable and exhaustible resources.

Entrepreneurial Ability

The imagination required to develop a new product or process, the skill needed to organize production, and the willingness to take the risk of profit or loss.

Entrepreneur

A profit-seeking decision maker who starts with an idea, organizes an enterprise to bring that idea to life, and assumes the risk of the operation.

Wages

Payment to resource owners for their labor.

Interest

Payment to resource owners for the use of their capital.

Rent

Payment to resource owners for the use of their natural resources.

Profit

Reward for entrepreneurial ability; sales revenue minus resource cost.

Good

A tangible product used to satisfy human wants.

Service

An activity, or intangible product, used to satisfy human wants.

Scarcity

Occurs when the amount people desire exceeds the amount available at a zero price.

Market

A set of arrangements by which buyers and sellers carry out exchange at mutually agreeable terms.

Product Market

A market in which a good or service is bought and sold.

Resource Market

A market in which a resource is bought and sold.

Circular-Flow Model

A diagram that traces the flow of resources, products, income, and revenue among economic decision makers.

Rational Self-Interest

The principle that each individual tries to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit.

Marginal

Incremental, additional, or extra; used to describe a change in an economic variable.

Microeconomics

The study of the economic behavior in particular markets, such as that for computers or unskilled labor.

Macroeconomics

The study of the economic behavior of entire economies, as measured, for example, by total production and employment.

Economic Fluctuations

The rise and fall of economic activity relative to the long-term growth trend of the economy; also called business cycles.

Economic Theory

A simplification of reality used to make predictions about cause and effect in the real world; also called an economic model.

Variable

A measure, such as price or quantity, that can take on different values at different times.

Other-Things-Constant Assumption

The assumption, when focusing on the relation among key economic variables, that other variables remain unchanged; in Latin, ceteris paribus.

Behavioral Assumption

An assumption that describes the expected behavior of economic decision makers—what motivates them.

Hypothesis

A theory about how key variables relate.

Positive Economic Statement

A statement that can be proved or disproved by reference to facts.

Normative Economic Statement

A statement that reflects an opinion, which cannot be proved or disproved by reference to the facts.

Association-Is-Causation Fallacy

The incorrect idea that if two variables are associated in time, one must necessarily cause the other.

Fallacy of Composition

The incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or the whole.

Secondary Effects

Unintended consequences of economic actions that may develop slowly over time as people react to events.

Origin

On a graph depicting two-dimensional space, the zero point.

Horizontal Axis

Line on a graph that begins at the origin and goes to the right and left; sometimes called the $x$ axis.

Vertical Axis

Line on a graph that begins at the origin and goes up and down; sometimes called the $y$ axis.

Graph

A picture showing how variables relate in two-dimensional space; one variable is measured along the horizontal axis and the other along the vertical axis.

Dependent Variable

A variable whose value depends on that of the independent variable.

Independent Variable

A variable whose value determines that of the dependent variable.

Positive Relation

Occurs when two variables increase or decrease together; the two variables move in the same direction (also called a direct relation).

Negative Relation

Occurs when two variables move in opposite directions; when one increases, the other decreases (also called an inverse relation).

Slope of a Line

A measure of how much the vertical variable changes for a given increase in the horizontal variable; the vertical change between two points divided by the horizontal increase.

Tangent

A straight line that touches a curve at a point but does not cut or cross the curve; used to measure the slope of a curve at a point.

Opportunity Cost

The value of the best alternative forgone when an item or activity is chosen.

Sunk Cost

A cost that has already been incurred, cannot be recovered, and thus is irrelevant for present and future economic decisions.

Law of Comparative Advantage

The individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize in that good.

Absolute Advantage

The ability to make something using fewer resources than other producers use.

Comparative Advantage

The ability to make something at a lower opportunity cost than other producers face.

Barter

The direct exchange of one product for another without using money.

Division of Labor

Breaking down the production of a good into separate tasks.

Specialization of Labor

Focusing work effort on a particular product or a single task.

Production Possibilities Frontier (PPF)

A curve showing alternative combinations of goods that can be produced when available resources are used efficiently; a boundary line between inefficient and unattainable combinations.

Efficiency

The condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another; getting the most from available resources.

Law of Increasing Opportunity Cost

To produce more of one good, a successively larger amount of the other good must be sacrificed.

Economic Growth

An increase in the economy's ability to produce goods and services; reflected by an outward shift of the economy's production possibilities frontier.

Economic System

The set of mechanisms and institutions that resolve the what, how, and for whom questions.

Pure Capitalism

An economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets.

Private Property Rights

An owner's right to use, rent, or sell resources or property.

Pure Command System

An economic system characterized by the public ownership of resources and centralized planning.

Mixed System

An economic system characterized by the private ownership of some resources and the public ownership of other resources; some markets are regulated by government.

Inverse Relationship

A relationship between two variables, such as $x$ and $y$, in which they move in opposite directions.

Equilibrium Point

The only price-quantity combination in a market that exactly matches the independent plans of buyers and sellers.

Stagflation

A situation in which a higher price level occurs simultaneously with lower employment.

Convergence Theory

The concept that less-developed countries should grow faster than advanced ones due to the ability to copy new technology, causing GDP and productivity growth rates to converge over time.

Physical Capital

Physical assets used in production such as machinery, factories, trucks, roads, bridges, and communications networks, excluding human capital components.