Unit 1: Basic Concepts Flashcards
Economics
Study of scarcity and choice
Individual choice
Decisions by individuals about what to do and what not to do
Economy
System that coordinates choices about production with choices about consumption, and distributes goods and services to the people who want them
Market economy
Production and consumption are the result of decentralized decisions by many firms and individuals (no central authority)
Command economy
Industry is publicly owned and there is a central authority making production and consumption decisions
Incentives
Rewards or punishments that motivate particular choices
Property rights
Establish ownership and grant individuals the right to trade goods and services with each other
Marginal analysis
Study of costs and benefits of doing a little bit more of an activity versus a little bit less
Resource
Anything that can be used to produce something else
Land
All resources coming from nature, such as minerals, timber, and petroleum
Labor
Effort of workers
Capital
Manufactured goods used to make other goods and services
Entrepreneurship
Efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and innovating to develop new productions and production processes
Scarce
Resource not available in sufficient quantities to satisfy all the various ways a society wants to use it
Opportunity cost
Value of what must be given up when making a particular choice
Microeconomics
Study of how people make decisions and how those decisions interact
Macroeconomics
Concerned with overall ups and downs in the economy
Economic aggregates
Economic measures that summarize data across many different markets
Positive economics
Branch of economic analysis that describes the way the economy actually works
Normative economics
Makes prescriptions about the way an economy should work
Business cycle
Short-run alternation between economic downturns (recessions) and economic upturns (expansions)
Depression
Deep and prolonged economic downturn
Expansions
Periods of economic upturns (recoveries) when output and employment are rising
Employment
Number of people currently employed in the economy
Unemployment
Number of people who are actively looking for work but aren’t currently employed
Labor force
Equal to the sum of employment and unemployment
Unemployment rate
Percentage of the labor force that is unemployed
Output
Quantity of goods and services produced
Aggregate output
Economy’s total production of goods and services for a given period of time
Inflation
Rising overall price level
Deflation
Falling overall price level
Price stability
When the economy’s aggregate price level is changing slowly
Economic growth
An increase in the maximum amount of goods and services an economy can produce
Model
Simplified representation used to better understand a real-life situation
Other things equal assumption
All other relevant factors remain unchanged (also known as the ceteris paribus assumption)
Trade-off
Give up something in order to have something else
Production possibilities curve (PPC)
Illustrates the trade-offs facing an economy that produces only 2 goods, and shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced
Efficient
No way for anyone in an economy to be better off without making at least 1 person worse off
Technology
Technical means for producing goods and services
Trade
Providing goods and services to receive goods and services in return
Gains from trade
People can get more of what they want through trade than they could if they tried to be self-sufficient (due to specialization)
Specialization
Each person specializes in the task that he or she is good at performing
Comparative advantage
An individual has this in producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people
Absolute advantage
An individual has this in producing a good or service if he or she can make more of it with a given amount of time and resources (not the same thing as a comparative advantage)
