unit 1 erms

Unit 1 Terms – Basic Economic Concepts

(Modules 1,3,4 & 10)

**Key Terms:**

}}**Economics**}}

The study of scarcity and choice

\
Economists examine how people choose to spend their money and time, which are limited, or scarce.

}}**Individual choice**}}

decisions by individuals about what to do, which necessarily involve decisions about what not to do.

\
Someone will probably choose generic brands when looking for at 2 brands of the same medication that has the same ingredients because it is usually cheaper.

}}**Economy**}}

A system for coordinating a society’s productive and consumptive activities.

\
The analyzation system of how a country spends their time, resources, and money.

}}**Market Economy**}}

an economy in which the decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions

\
The US has a mixed economy, but leans more to the Market Economy side.

}}**Command Economy**}}

the *economy* in which industry is publicly owned and a central authority makes production and consumption decisions

\
The government places restrictions on certain goods such as nuclear weapons because they are dangerous to the population and regulations make the community safer.

}}**Incentives**}}

rewards or punishments that motivate particular choices

\
If an item is buy one get one free, they are more likely to buy the item because they will get a better deal.

}}**Property rights**}}

establish ownership and grant individuals the right to trade goods and services with each other.

\
Property rights are used for businesses, homes, charities, the government, etc.

}}**Marginal Analysis**}}

the study of the costs and benefits of doing a little more of an activity versus a little bit less

\
You could compare the grade you would get if you studied for 4 hours vs 3 hours.

}}**Resource**}}

anything that can be used to produce something else

\
Any natural substance would be considered a resource.

}}**Land**}}

all resources that come from nature

\
Examples include minerals, timber, and petroleum.

}}**Labor**}}

the effort of workers

\
Each person used a differing amount of labor or productivity working the same job.

}}**Capital**}}

manufactured goods also used to make other goods and services

\
Examples include tools, machinery, etc.

}}**Entrepreneurship**}}

Starting a firm or business because their is a lack of efficiency in the current system or their is a need for the community that their is no solution to.

\
One individual decides to start a business with a patented product because their product is better than others on the market.

}}**Scarce**}}

in short supply; when a resource isn’t available in sufficient quantities to satisfy all the various ways society wants to use it

\
All resources are scarce.

}}**Opportunity cost**}}

the real cost of an item; the value of the next best alternative you must give up in order to get that item

\
if you can only choose one snack and they cost the same amount of money, the enjoyment of the one you don’t choose is the opportunity cost.

}}**Macroeconomics**}}

branch of economics that is concerned with overall ups and downs of the economy

\
Why is the state of the economy where it is and how did it get there?

}}**Microeconomics**}}

branch of economics that studies how individuals, households, and firms make decisions and how those decisions interact

\
If a firm picks one advertisement option over another does it benefit them more or less?

}}**Economic Aggregates**}}

economic measure that summarize data across many different markets

\
Different sets of data can be compared using these stipulations.

}}**Positive Economics**}}

branch of economics analysis that describes the way the economy actually works

\
No opinions or judgement are used, analysis based on fact.

}}**Normative economics**}}

branch of economic analysis tat makes prescription on how the economy should work

\
Judgement and opinions evaluated, not based on fact.

}}**Trade-off**}}

when you give up something in order to have something else

\
If you are running late and choose to get breakfast, you now have a tardy pass but got breakfast.

}}**Production Possibilities Curve**}}

illustrates trade off that economy faces when they produce only 2 goods, shows maximum quantity of one goods that can be produced or each possible quantity of another good produced.

an economy can produce a maximum of 1200000 computers while producing a maximum of 900000 , phones or 30000000 computers and 0 phones.

}}**Efficient**}}

describes a market or *economy* in which there is no way to make anyone better off without making at least one person worse off

\
Because the world is now focused on specialization, having markets with more efficiency is more common.

}}**Productive Efficiency**}}

achieved by economy if it produced on point of ppc

\
An economy can produce a maximum of 1200000 computers while producing a maximum of 900000 phones.

}}**Allocative Efficiency**}}

achieved by an *economy* if it produces at the point along its *production possibilities curve* that makes consumers as well of as possible

\
If a certain product is in more of a demand than another product a certain producer makes, they would want to continue to produce an ratio of products on the curve, but leaning more towards the product in great demand.

}}**Trade**}}

when, in a market economy individuals provide gods and services to others with goods and services in return

\
I gave my neighbor 2 cups of flour when she needed it, so when my car broke down, she drove me to school.

}}**Specialization**}}

situation in which each person specializes in the task that he or she is good at doing

\
I am good at reading so I am a teacher instead of a blacksmith.

}}**Absolute advantage**}}

the advantage conferred by the ability to produce more of a good or service with a given amount of time and resources; different to comparative advantage

\
In this scenario, the company would be able to produce more of a good or service based on their efficiency when compared to a different company given the same amount of time and resources.

}}**Comparative advantage**}}

the advantage conferred by an individual if the *opportunity cost* of producing the good or service is lower for that individual than for other people

\
When one entity can produce something by giving up less of the other option when compared to another entity that produces that item with less efficiency.

}}**Circular flow Diagram**}}

shows how money flows through the factors of production

\
Anything that is sold has a circular flow diagram.

}}**Household**}}

a person or group of people who share income

\
My parents and I are a household, and my dad is the only person who has a job.

}}**Firm**}}

organization that produces goods and services for sale

\
Any business is a firm.

}}**Product markets**}}

where goods and services are bought and sold

\
Places such as grocery store, goodwill, shop, etc. are product markets.

}}**Consumer spending**}}

household spending on goods and services

\
In my house, we frequently get groceries and haircuts, two examples of consumer spending.

}}**Factor markets**}}

where resources, especially capital and labor are bought and sold

\
Something is produced to be sold.