Unit 1 Flashcards
Trade off
an alternative that we sacrifice when we make a decision
Economics
the study of how society manages its scarce resources
Scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants
constraint
limitation or restriction of resources (time, money, etc)
opportunity cost
whatever must be given up to obtain some item
Microeconomics
the study of the economic behavior and decision making of small units, such as individuals, families, and businesses
Macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
goods
Items purchased to satisfy needs and wants
Services
Items of value that cannot be seen or touched
Consumer
A person who purchases goods and services for personal use
consumption
spending by households on goods and services.
Economic Resources
the means through which goods and services are produced
factors of production
land, labor, capital, entrepreneurship
land
all natural resources used to produce goods and services
labor
Human effort directed toward producing goods and services. “Human capital”
Capital
the tools, equipment, machinery, and factories used in the production of goods and services
human capital
the knowledge and skills that workers acquire through education, training, and experience
Entrepreneurship
the process of starting, organizing, managing, and assuming the responsibility for a business
Rival nature
Only one person can consume them at a time
non-rival nature
more than one person or business at a time can use such information without depleting the supply for others
Economic system
Defined by the way a society answers three questions: What goods and services will be produces? How will those goods and services be produced? Who will consume the goods and services?
Means of Production
Everything used to supply goods and services, such as farmland, copper mines, factories, office buildings, robots, and super computers.
Traditional Economy
An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.
command economy
An economic system in which the government makes all economic decisions.
Market Economy (Capitalism)
An economic system based upon the fundamentals of private property, freedom, self-interest, and prices
mixed economy
both government and individuals make decisions about economic resources. (Most Countries in the World)
Production Possibilities Curve (PPC)
A basic economic model that illustrates scarcity and opportunity costs.
Efficiency
using resources in such a way as to maximize the production of goods and services
underutilized
not using all possible resources
contraction
a decline in output
growth
Increasing production
absolute advantage
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
Specialization
focusing on the production of specific goods so that more products can be produced with the same amount of labor
division of labor
the assignment of different parts of a manufacturing process or task to different people in order to improve efficiency.
gains from trade
result when two countries specialize in commodities in which they have a comparative advantage and exchange with one another, allowing each to benefit from increased consumption of goods they would not have without trade.
cost-benefit analysis
economic model that compares the marginal costs and marginal benefits of a decision
rational agents
free agents capable of making their own decisions, setting their own goals, and guiding their conduct by reason
Explicit Opportunity Cost
Opportunity costs that involve a payment of some kind
Implicit Opportunity Cost
is one (cost) an individual or a business gives up in order to use a resource that it already has or is using
Utility
Ability or capacity of a good or service to be useful and give satisfaction to someone.
Total Benefits
The amount of satisfaction people receive from all of the goods and services they use.
Total Costs
The time, effort, and expense they spend to obtain goods and services.
Total Net Benefits
the difference between total benefits and total costs
optimal choice
The level at which you receive the greatest benefit for the least cost.
marginal benefit
the additional benefit you gain from producing each additional unit. MB = Change in total benefits/Change in Output
marginal cost
How much more you would have to spend to produce additional units.
Consumer Choice Theory
The theory relating consumer demand curves to consumer preferences.
diminishing marginal utility
decrease in satisfaction or usefulness from having one more unit of the same product
marginal utility
satisfaction or usefulness obtained from acquiring one more unit of a product
marginal benefit
the additional benefit to a consumer from consuming one more unit of a good or service
marginal analysis
analysis that involves comparing marginal benefits and marginal costs
optimal quantity
the quantity that generates the highest possible total profit. MB=MC
sunk cost
a cost that has already been committed and cannot be recovered
utility maximizing rule
The principle that to obtain the greatest utility, the consumer should allocate money income so that the last dollar spent on each good or service yields the same marginal utility.
