Unit 1: Basic Economic Concepts (Definitions) Flashcards
Economics
The social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants.
Individual Choice
Decisions by individuals about what to do and what not to do
Economy
A system for coordinating a society’s productive and consumptive activities.
Microeconomics
The study of the behavior and interaction of individual economic decision-makers including individuals, firms, and industries.
Macroeconomics
The study of the economy as a whole.
Positive economics
Branch of economic analysis that is based on facts and avoids value judgements.
Normative economics
Branch of economic analysis that is based on value judgements.
Scarcity
A situation where unlimited wants exceed limited/finite resources.
Market economy
An economic system where the decisions of individuals producers and consumers determine, what, how, and for whom to produce.
Command economy
An economic system where resources are publicly owned and a central authority makes production and consumption decisions.
Incentives
Rewards or punishments that motivate particular choices.
Opportunity cost
The cost of the next best alternative forgone.
Resource
The inputs used in the production of goods and services.
Land
Non-man-made natural resources available for production.
Factors of production
The economic resources of land, labor, capital, and entrepreneurship used in the production of goods and services.
Labor
The physical and mental effort that people contribute to the production of goods and services.
Capital
Man-made resources used to produce goods and services.
Entrepreneurship
The special human skill to take business risks, seek new business opportunities, innovate by developing new ways of doing things and managing the other 3 factors of production.
Property rights
The ownership of resources that grant individuals the right to trade goods and services.
Trade-offs
ALL the alternatives given up when a choice is made.
Production Possibilities Curve
A model that illustrates the maximum output of two goods and the combination of the goods able to be produced using existing resources and technology.
Price
The amount the consumer pays.
Cost
The amount the producer pays to make the product.
Consumer goods
Goods created for direct consumption.
Capital goods
Goods that produce consumer goods.
Resource market
An arrangement where the factors of production (land, labor, capital) are sold by households to businesses.
Product market
An arrangement where goods and services are bought and sold.
