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.