Ch 1-3 Flashcards
The study of how society manages its scarce resources
Economics
When society gets the most from its scarce resources
Efficiency
When prosperity is distributed uniformly among society’s members
Equality
Whatever given up to attain something
Opportunity cost
People who systematically and purposefully do the best they can to achieve their objectives
Rational people
Incremental adjustments to an existing plan
Marginal changes
Something that induces a person to act ie the prospect of reward or punishment
Incentive
A group of buyers and sellers not necessarily in the same location
Market
Allocates resources through the decentralized decisions of many households and firms as they interact in markets
Market economy
Invisible hand
Price
When the market fails to allocate society’s resources efficiently
Market failure
When the production or consumption of a good affects bystanders ie pollution
Externalities
A single buyer or seller has substantial influence on market price ie monopoly
Market power
The most important determinant of living standards, the amount of goods and services produced per unit of labor
Productivity
Increase in the general level of prices
Inflation
The resources the economy uses to produce goods and services including labor land and capital
Factors of production
The study of how households and firms make decisions and how they interact in markets
Microeconomics
Study of the economy-wide phenomenons including inflation, unemployment, and economic growth
Macroeconomics
Attempt to describe the world as it is, can be refuted or confirmed
Positive statement
Attempt to prescribe how the world should be, can’t be refuted or confirmed
Normative statement
Trade can make everyone better off
Interdependence
Goods produced domestically and sold abroad
Exports
Goods produced abroad and sold domestically
Imports
The ability to produce a good using fewer inputs than another producer
Absolute advantage
The ability to produce a good at a lower opportunity cost than another producer
Comparative advantage
The limited nature of society’s resources
Scarcity
