Hubbard_Micro8.1e_Ch01

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Economic model

Simplified versions of reality used to analyze real-world economic situations.

Market

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Trade-off

The idea that, because of scarcity, producing more of one good or service means producing less of another good or service.

Opportunity cost

The highest-valued alternative that must be given up to engage in some activity.

Rational decision-making

Assumption that people are rational and use all available information to achieve their goals.

Economic incentives

Factors that motivate individuals to make certain decisions or take specific actions.

Marginal analysis

Analysis that involves comparing marginal benefits and marginal costs.

Productive efficiency

A situation in which a good or service is produced at the lowest possible cost.

Allocative efficiency

A state of the economy in which production is in accordance with consumer preferences.

Voluntary exchange

A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction.

Equity

The fair distribution of economic benefits.

Positive analysis

Analysis concerned with what is.

Normative analysis

Analysis concerned with what ought to be.

Microeconomics

The study of how households and firms make choices and how they interact in markets.

Macroeconomics

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

Factors of production

Economic resources or inputs used to produce goods and services, including labor, capital, land, and entrepreneurial ability.

Revenue

Total amount received for selling a good or service.

Profit

The difference between revenue and its costs.

Mixed economy

An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role.

Centrally planned economy

An economy in which the government decides how economic resources will be allocated.

Market economy

An economy in which the decisions of households and firms interacting in markets allocate economic resources.