Unit 1: Basic Economic Concepts Flashcards
Economics
A behavioral science exploring peoples behavior in a world of scarcity
Normative Economics
Economics in terms of qualities rather than in explicit numerical information, studies opinion/value-based judgments regarding improving economic development, wealth distribution, policymaking, etc.
Labor
Human effort and skills used in the production of goods & services
Capital
Physical goods that are used in the production of goods & services; buildings, machinery, tools
Opportunity Cost
The cost of a choice is the value of the best alternative forgone/ The trade-off of the benefit of one good for the benefit of another
Absolute Advantage
The ability of one entity to produce more of a good/service than another producer when given the same quantity of resources.
Production Possibilities Frontier ( PPF)
The graph showing the possible maximum outputs of two separate goods when given a set amount of resources and technology.
Convex Curve
A P.P.C. diagram signifying the opportunity cost decreasing between two goods.
Economic Growth
An increase in the production of a good or service in an economy over time (typically using GDP but not always)
Market Economy
An economy where economic decisions are made by individuals competing to earn profits based on supply & demand
Mixed Economy
An economy that combines elements of pure market and command economies; Economic decision-making is shared between the government and individuals (private entities).
Terms of Trade
The price or tradeoffs negotiated when two countries decide to trade with one another.
Efficiency
An entity producing goods at the lowest possible cost to yield the most product (with the highest quality possible)
Resource
Things that go into the making of goods and services. Includes human resources, capital resources, and human resources.
Positive Economics
Economic analysis in the terms of quantifiable values, describing economic occurrences in objective and numerical terms (lacks personal judgements)
Factors of Production
Land, Labor, Capital, Entrepreneurship
Entrepreneurship
The ability of individuals to identify business opportunities & take risks to start & run successful businesses
Land
All natural resources used in the production of goods & services; forest, mineral, water, and fertile soil
Comparative Advantage
When one entity can produce a specific good in the highest quality and least time in comparison to the other entity. The producer making the product most efficiently has comparative advantage over the other.
Production Possibilities Curve (PPC)
The highest valued, forgone alternative to any decision ( must be quantifiable)
Constant Curve
A straight line reflecting equal trade off between two goods ( same O.C w/ one good)
Concave Curve
Curved normal P.P.C. line, mutually increasing opportunity costs as manufacturing of goods shifts the product favored
Command Economy
An economic system where the government or other central authority makes all the economic decisions.
Scarcity
The gap between limited resources and unlimited wants.
