Section 1: Basic Economic Concepts Flashcards
Ceteris Paribus
means “other things equal” and is assumed in order to make generalizations
Scarcity
the demand for a good or service is greater than the availability of the good or service
Factors of Production
Land, Labor, Capital, Entrepreneurship
Definition of Macroeconomics
the study of the economy as a whole
or in aggregates such as all households or all businesses
Definition of Microeconomics
looks at specific economic units
A household or a business
Marginal Benefit
how much extra benefit for the choice
Marginal Cost
how much extra cost comes from the choice
Comparative Advantage
One country can produce a good at a lower opportunity cost than another country
Absolute Advantage
One country can produce more of a good than another country
(Not just about cost)
Terms of Trade
the trading price agreed upon by two trade partners that will be mutually beneficial
Specialization
should specialize based on having a lower opportunity cost
Positive Economics
focuses on facts and cause-and-effect relationships.
Normative Economics
incorporates value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal
Economics
the study of the efficient use of scarce resources to achieve the maximum satisfaction of economic wants
Opportunity Cost
the value of a choice,relative to their alternative.
Theoretical Economics
the process of deriving theories and principles
Economic Policy
When societies apply economic generalizations to solving problems
Command Economy
The government controls the factors of production
Market Economy
individuals and businesses control the factors of production
Mixed Economy
Some factors of production are controlled by the government, others by individuals
Adam Smith, The Wealth of Nations, and the Invisible Hand
Business Cycles
the alternating rises and declines in the economy
Inflation
a rise in the overall level of prices
Deflation
fall in overall price level
Price Stability
Prices increase slowly
Trade-Offs
When you give up something to have something else
Production possibilities curve (PPC)
a model that measures opportunity costs
Goods for the present
consumer goods
Goods for the future
capital goods, research & education and preventative medicine.
Specialization
Countries should specialize in and only produce goods in which they have a comparative advantage.
Capital
the assets that allow for increased work productivity
Entrepreneur
Business leaders that combine other factors of production to develop solutions to economic needs
production-possibilities curve indicates
the opportunity cost
Physical Capital
any human made resource that is used to create other goods and services
Human Capital
Any skills or knowledge gained by a worker through education and experience
