Chapter 1: The Economic Way of Thinking Flashcards
desires that can be met by consuming products
wants
things necessary for survival
needs
lack of resources available to meet all human wants - not a temporary shortage
scarcity
study of how people use resources to satisfy wants
- examines how individuals and societies choose to use resources
- organizes, analyzes, and interprets data about economic behavior
- develops theories, economic laws to explain the economy, predict future
economics
physical objects that can be bought
goods
work one person does for another to pay
services
person who buys a good for personal use
consumer
a maker of goods or a provider of services
producer
resources needed to produce goods and services
- supply is limited
factors of production
- land
- labor
- capital
- entrepreneurship
all natural resources on or under the ground (water, forests, wildlife, mineral deposits)
land
humans and their efforts, time, and talent used to make products (physical and mental)
labor
producer’s physical resources (tools)
machines, offices, stores, roads, vehicles
capital (“physical” or “real”)
vision, skill, ingenuity, willingness to take risks
- develop new products, methods of production, marketing, or distributing
- risk time, energy and money to make a profit
- anticipate consumer wants
entrepreneurship
benefits that encourage people to act in certain ways
incentives
benefit or satisfaction gained from using a good or service
utility
to make choices, people __________ - make decisions according to best combination of costs and benefits
economize
an alternative people give up when they make a choice (usually give up to get more of another)
trade-off
the value of the next best alternative a person gives up
- not the value of all possible alternatives
opportunity cost
examination of costs, expected benefits of choices
- one of the most useful tools for evaluation relative worth of economic choices
cost-benefit analysis
additional cost of using one more unit of a good or service
marginal cost
additional benefit of using one or more good or service
marginal benefit
simplifies representations of economic forces
economic models
a model that shows maximum goods or services that con be produced from limited resources
- based on assumptions that simplify economic interactions
production possibilites curve
producing the maximum amount of goods and services
efficiency
producing fewer goods and services than possible
underutilization
as a production switches from one product to another, more resources needed to increase production of second product
law of increasing opportunity costs
numerical data or information
- show patterns of human behavior
- economic models help analyze and interpret data (focus on a limited number of variables)
statistics
show changes over time
line graph
usually show a comparison of years
bar graph
show percentages
pie charts
studies of behavior of individual players in an economy (includes individuals, families, and businesses)
- prices, costs, profits, competition, consumer/producer behavior
microeconomics
studies behavior of the economy as a whole (inflation, unemployment, aggregate demand/supply)
- sectors of economy (combination of all individual units - consumer, business, government, etc.)
macroeconomics
describes and explains economic behavior as it is - uses verifiable facts, no judgements scientific method used - observe data, hypothesize - proved or disproved - "concrete", not "abstract"
positive economics
studies what economic behavior should be
- makes value judgements to recommend future actions
- study facts, ask if course of action is good
- recommendations differ because the values they are based on also differ
normative economics
founder of modern economics
“Wealth of Nations”
Adam Smith
