economics
the social science concerned with how individuals, and society, make optimal choices under conditions of scarcity
economic perspective
an economic way of thinking, typically involving marginal analysis and thinking in a way that would provide maximum utility
opportunity costs
costs in which resources are put to use on something at the cost of restraining another alternative/opportunity; the sacrifice of other options in utilizing resources due to choosing another
utility
the pleasure, happiness, or satisfaction obtained from consuming a good or service
marginal analysis
comparisons of marginal benefits and marginal costs, usually for decision making
scientific method
the observation of real world behavior, formulation of hypotheses, trial of hypotheses, and if proven correct, will result in an economic law
economic principle
a statement about economic behavior or the economy that enables prediction of the probable effects of certain actions
other things equal assumption
the assumption that factors other than those being considered to not change; ceteris perebus
macroeconomics
examines either the economy as a whole or its basic subdivisions/aggregates, such as the government, household, and business sectors
aggregate
a collection of specific economic units treated as if they were one unit
microeconomics
the part of economics concerned with individual units such as a person, a household, a firm, or an industry
positive economics
focuses on facts and cause-effect relationships
normative economics
incorporates value judgments about what the economy should be like, of what particular policy actions should be recommended to achieve a desired goal
economizing problem
the need to make choices because economic wants exceed economic means
budget line
a schedule or curve that shows the various contributions of two products a consumer can purchase with a specific money income
economic resources
all natural, human, and manufactured resources that go into the production of goods and services
land
all the natural resources, i.e., arable land, forests, minerals, oil, and water sources
labor
consists of the physical and mental talents of individuals used in producing goods and services
capital
includes all of the manufactured aids used in producing goods and services
investment
the purchase of capital goods
entrepreneurial ability
a special human resource that utilizes other resources to make a profit
factors of production
the land, labor, capital, and entrepreneurial abilities combined to produce goods and services
consumer goods
products that satisfy our wants directly
capital goods
products that satisfy our wants indirectly through more efficient production of consumer goods
production possibilities curve
data of a production possibilities table expressed graphically; illustrates how much of one good can be produced given the quantity of the other
law of increasing opportunity costs
as the production of a particular good increases, the opportunity cost of producing an additional unit rises
economic growth
an increase of total output of the economic system
horizontal axis
the x axis, typically the home for factors
vertical axis
the y axis, typically used to express results
direct relationship
positive correlation between factors and results (positive slope)
inverse relationship
negative correlation between factors and results (negative slope)
independent variable
the factor that is chosen
dependent variable
the result
slope of a straight line
change in y over change in x
vertical intercept
where the line/curve intersects with the y-axis
Why does economics exist?
Because there are limited resources, and decisions are made for optimal utility from these resources
What does the Individual's Economizing Problem stem from?
Limited Income, Unlimited Wants, a Budget Line, Opportunity Costs
What are the four types of economic resources?
Land, Labor, Capital, Entrepreneurial Ability
What four assumptions are made in the Production Possibilities Model?
1.Full employment of resources
2.A fixed amount of resources
3.Fixed technology
4.Two goods
When is optimal allocation reached?
When marginal benefit and marginal cost are equal
The points on the curve of the production possibilities represent what?
Full employment of resources
What causes economic growth?
1.increases in supplies of resources
2.improvements in resource quality
3.technological advances
What are some common pitfalls to sound economic reasoning?
1. Biases
2. Loaded Terminology
3. Fallacy of Composition- assuming what is true for an individual or part of a group, is true for the entire group
4. Post Hoc Fallacy- assuming that since a result occurs after an event, that event is responsible for the