Ch1-4 Flashcards
Opportunity Cost
To obtain more of one thing, society forgoes the opportunity of getting the next best thing. That sacrifice if the opportunity cost of the choice.
Scarcity
Scarce economic resources mean limited goods and services.
Utility
The pleasure, happiness, or satisfaction obtained from consuming a good or service.
Purposeful Behavior
Time, energy, and money are allocated to maximize satisfaction. Since they weigh costs and benefits, their economic decisions are purposeful. Consumers purposeful in what to buy, businesses are purposeful in deciding what services to provide. People make decisions with some desired outcome in mind.
Marginal Analysis
Comparisons of marginal benefit and marginal costs, usually for decision making. In the world of scarcity, the decision to obtain the marginal benefit associated with some specific option always includes the marginal cost of forgoing something else.
Economic Principle
Generalization
Other things equal
A statement about economic behavior or the economy that enables prediction of the probable effects of certain actions. Generalizations relating to economic behavior. Other-things-equal assumption: Ceteris paribus- the assumption that factors other than those being considered do not change.
Microeconomics
The part of economics concerned with decision making by individual customers, workers, house-holds, and business firms.
Macroeconomics
Examines either the economy as a whole or its basic subdivisions such as the government, household, and business sectors. Ex: total output, total income, total employment.
Aggregates
A collection if specific economic units treated as if they were one unit. (General outline)
Positive Economics
Focuses on facts and cause-and-effect relationships. (Establishes scientific statements about economic behavior and deals with how the economy is actually like).
Normative economics
Incorporates value judgements about what the economy should be like.
Economizing Problem
The need to make choices because economic wants exceeds economic means.
Limited Income, but Unlimited Wants
Because we have only limited income but seemingly insatiable wants, it is in our self-interest to economize: to pick and choose goods and services that maximize our satisfaction given limitations we face.
Budget Line
A schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income.
Land
To economist land includes all natural resources used in the production process. (Forest, mineral and oil deposits, water resources, wins power, sunlight,etc)
Labor
The resource labor consists of the physical actions and mental activities that people contribute to the production of goods and services.
Capital
Capital goods include all manufacturing aid used in producing consumer goods and services. Economist call investments to describe spending that pay for the production and accumulation of capital goods.
Entrepreneurial Ability
Takes initiative in combining the resources of land, labor, and capital to produce a good/service. Entrepreneurs: driving force behind production, makes strategic business decisions that set the course of an enterprise, innovates, bears risks.
Factors of Production
Land, labor, capital, and entrepreneurial ability are combined to produce goods and services.
Full Emplyment
Employing all of its available resources .
Fixed resources
The quantity and quality of the factors of production are fixed.
Fixed technology
The state of technology is constant.
Two goods
The economy is only producing two goods: consumer and capital goods.
Production possibility table
Lists the different combinations of two products that can be produced with a specific set of resources, assuming full employment.
Production possibility curve
Displays the different combo of goods and services that society can provide in fully employed economy, assuming fixed supply and technology. Point on the curve represent max output of two products. Points inside are attainable, but reflect less total output(unemployment). Points lying beyond the PPC represent greater output, unattainable with the current availability of resources and technology.
Law of Increasing Opportunity Cost
Economic principle- for society, the opportunity cost of each additional unit of consumer goods is greater than the opportunity cost of the preceding one. (From point to point on the curve) As the production of particular good increases, the opportunity cost of producing an additional unit rises.
Economic Rationale
Law of increasing opportunity cost driven by the fact that economic resources are not completely adaptable to the alternative uses. Many resources are better at producing one type of good than at producing others. Lack of perfect flexibility of the resource is cause of increasing opportunity cos for society.
Optimal(best) Allocation(output)
The optimal amount occurs when MC = MB.
Unemployment
Any point inside PPC represents unemployment.
Causes PPC to shift positions
Increases in resource supplies: growing educated population improvement of quality and quantity of resources. Advances in technology.
Economic system
A particular set of institutional arrangements and a coordinating mechanism to respond to the economizing problem.
The Command System
Socialism, or communism. Government owns most property resources and economic decision making occurs through a central economic plan. North Korea and Cuba.
