Economics
The social science concerned with how individual institutions, and society make the best choices under scarcity
Economic Principle
A widely accepted generalization about the economic behavior of individuals or institutions
Opportunity Cost
The amount of other products that must be sacrificed to produce a unit of a different product
Utility
The want-satisfying power of a good or service;the satisfaction one gets from a good/service
Marginal Analysis
Comparison of marginal "extra" benefit of consuming one more unit of a good/service: (the change in total variable cost divided by the change in output)
Scientific Method
the procedure for the pursuit of knowledge--observation of facts and the formulation and testing of hypotheses to obtain theories, laws, and principles.
Other-things-equal assumption
The assumption that factors other than those being considered are held constant
Invisible Hand
The tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promote the interests of society (profits/price of goods determine consumer interests)
Macroeconomics
the part of economics concerned with the economy as a whole--aggregates
Microeconomics
the part of economics concerned with decision making by individual units --such as households, firms, and industries
Aggregate
A collection of specific economic units treated as if they were one
Positive economics
What the economy actually looks like
Normative economics
what the economy should be like--achieved through economic goals and policies---policy economics
Economizing Problem
Necessary choices because society's wants for goods/services are limited but resources are scarce
Budget line
a line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices
economic resources
Land, labor, capital, and entrepreneurial ability that are used in producing goods/services
Factors of production
Economic Resources (refer to definition)
land
Natural resources used to produce goods/services
labor
people's physical/mental talents and efforts that are used to make goods/services
Capital
Human made resources (buildings/equipment/machinery) used to produce goods/services. Don't satisfy wants directly
Consumer goods
products/services that satisify human wants directly
investment
Spending for the production and accumulation of capital and additions to inventories
Entrepreneurial ability
the human resource that combines the other resources to produce a product, makes decisions, innovates, and bears risks
Production possibility curve
Shows the different combination of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources/technology are fixed
Laws of increasing opportunity cost
As the production of a good increases, the opportunity cost of producing an additional unit rises
Economic growth
Outward shift in the PPC that results from better resource supplies/quality and better technology
Economic System
Institutional arrangements that solves economizing problem
Command System
a method of organizing an economy in which resources are publicly owned and gov't uses central economic planning to direct economic activities
Market system
All the product and resource markets of a market economy and the relationships among them; a method that allows the prices determined in those markets to allocate the economy's scarce resources and to commumunicate decisions made by consumers, firms, and
freedom of enterprise
The freedom of firms to obtain economic resources, to use those resources to produce products of the firm's own choosing and to sell their products in the markets of their hoice
Freedom of choice
The freedom of owners of property resources to employ or dispose of them as they see fit, of workers to work for which they are qualified, and of consumers to spend their money wherever
competition
Independent buyers/sellers competing with one another along with the freedom of buyers/sellers to enter/leave the market
market
Any institution or mechanism that brings together buyers and sellers of a good/service
specialization
The use of resources of an individual, a firm, a nation, or a region to concentrate production on one or a small number of goods/services-increases production level
Division of labor
Specialization of workers
Consumer sovereignty
Determination by consumer of goods and services that will be produced with the scarce resources of economy; consumers' direction of production through their dollar votes
dollar votes
Votes" that consumers cast for production of consumer and capital goods when they purchase those goods in product and resource markets
Creative destruction
creation of new products/production methods destroys the market power of existing monopolies
Circular flow diagram
Shows the flow of resources from household to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and from households to firms
Medium of exchange
Items sellers accept and buyers use to pay for a good/service (money not barter)
barter
Exchange of one good/service for another one
money
Any item that is acceptable to sellers in exchange for goods/services
resource market
a market in which households sell and firms buy resources or the services of resources
product market
a market in which products are are sold by firms and bought by households