Chapters 1 & 2 Flashcards
Opportunity Cost
Highest forgone benefit
Economics
Science that studies how to use our scarce resources to satisfy our unlimited needs
Microeconomics
Branch of economics that studies the behaviour of each individual economic unit
Macroeconomics
Branch of economics that studies the behaviour of the whole economy
Production Possibility Curve
Shows the different bundles from any two goods that we could produce using all available resources
Law of Increasing Opportunity Cost
The amount we have to sacrifice to produce one good instead of another because resources are not easily transferable from one use to another
Consumer Goods
Used for consumption
Capital Goods
Used for production
Specialization
Concentration on the production of one or few goods
Comparative Advantage
To be able to produce a good at a lower opportunity cost
Labour Intensive
Production uses more labour
Capital Intensive
Production uses more of capital
Free Market Economy
Private decisions determine how resources are allocated, “consumer sovereignty”
Command Economy
Government determines allocation of resources through central planning
Mixed Economy
Both private and public sectors determine allocation of resources
Positive Incentives
Used to encourage an activity by increasing benefits or lowering costs
Negative Incentives
Used to discourage an activity by increasing benefits or lowering costs
Goods
Items we desire or value
Bads
Items we don’t desire or value
Correlation
Two events or variable tend to occur together, but they do not cause each other
Causation
One event or variable causes another event to happen
Theory
An explanation for a phenomenon
Hypothesis
A proposition or claim that can be tested
Empirical Analysis
Examining data to see if a hypothesis is correct
