scarcity
inability to satisfy all our needs
incentive
an additional payment (or other remuneration) to employees as a means of increasing output
economics
the study of how individuals and nations make choices about ways to use scarce resources to fulfill their needs and wants
microeconomics
the study of the economic behavior and decision making of small units, such as individuals, families, and businesses
macroeconomics
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
factors of production
land - natural resource (RENT)
labor - work time and effort(WAGES)
capital- tools instruments, machines(INTEREST)
entrepreneurship - human resource that organizes labor, land and capital (PROFIT)
human capital
knowledge and skill that people obtain form education, experience, etc
self interest
choice made is the best one available for you
social interest
best for the society as a whole, outcome that uses resources efficiently, distributes goods equally.
globalization
expansion of international trade
tradeoff
exchange, giving up one thing to get something else.
big tradeoff
the tradeoff between equality and efficiency
opportunity cost
highest valued alternative that we must give up to get it
marginal benefit
the additional benefit to a consumer from consuming one more unit of a good or service
marginal cost
the cost of producing one more unit of a good
positive statements
what is... checking it with facts
normative statements
what ought to be .... cant be tested
economic model
description of some aspect of the economic world that includes only the features needed... ex:economic model of a cell phone
production possibilities frontier
boundary between these combinations of goods and services that can be produced and those that cannot.
production efficiency
if we produce goods and services at the lowest cost possible. points of ppf
allocative efficiency
when goods and services are produced at the lowest possible cost and in the quantities that provide the greatest benefit.
marginal benefit curve
curve that shows the relationship between the marginal benefit from a good and the quantity consumed of that good.
technological change
development of new goods and of better ways of producing goods and services
capital accumulation
growth of capital resources including human capital.
comparative advantage
person can perform the activity at a lower opportunity cost than anyone else.
absolute advantage
person who is more productive than others
dynamic comparative advantage
comparative advantage that a person or country has acquired by specializing in an activity and becoming the lowest cost producer as a result of learning by doing.
firm
economic unit that hires factor of production and organizes those factors to produce and sell goods and services.
market
an arrangement that enables buyers and sellers to get information and to do business with each other.
property rights
The rights of an individual to own, use, rent, invest in, buy, and sell property.
money
any commodity or token that is accepted as a means of payment.
economic growth
expansion of production possibilities
competitive market
has many buyers and sellers, no single buyer or seller can influence the price
money price
price of an object in dollars
relative price
ratio of one price to another (it is an opportunity cost)
quantity demanded
amount that consumers plan to buy during a given time period at a particular price
law of demand
higher $ = less QD
lower $ = more QD
substitute
good that can be used in place of another good
compliment
good that is used in conjunction with another good hamburgers and french fries
quantity supplied
of a good or service is the amount that producers plan to sell during a given time period at a particular price
The Law of Supply
Other things remaining the same, the higher the price of a good, the greater is the quantity supplied. and vice versa
equilibrium price
the price that balances quantity supplied and quantity demanded
equilibrium quantity
quantity bought and sold at equilibrium price
speculative bubble
The price rises purely because it is expected to rise and events reinforce the expectation.
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
perfectly inelastic demand
the case where the quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero.
unit elastic demand
the type of demand that exists when the percentage change in quantity demanded is the same as the percentage change in price
perfectly elastic demand
quantity demanded changes infinitely large in response to a tiny price change
total revenue
the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold
total revenue test
A test to determined the elasticity of demand between any two prices: Demand is elastic if total moves in the opposite direction of the price; it is inelastic when it moves in the same direction as its price; and it is of unitary elasticity when it does n
cross elasticity of demand
a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
elasticity of supply
the relationship between the percentage change in quantity supplied and the percentage change in price