Economics
the social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity.
Economic Prospective
economic way of thinking
Opportunity Cost
To obtain more of one thing, society forgoes the opportunity of getting the next best thing
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. To economists, "marginal" means "extra," "additional," or "a change in
Scientific Method
1.Observing real-world behavior and outcomes
2.Based on those observations, formulating a possible explanation of cause and effect (hypothesis)
3.Testing this explanation by comparing the outcomes of specific events to the outcome predicted by the hypothe
Economic Principle
a statement about economic behavior or the economy that enables prediction of the probable effects of certain actions
Other-things-equal Assumption
assumption that factors other than those being considered do not change
Microeconomics
part of economics concerned with decision making by individual customers, workers, households, and business firms
Macroeconomics
examines either the economy as a whole or its basic subdivisions or aggregates, such as the government, household, and business sectors
Aggregate
a collection of specific economic units treated as if they were one unit. Therefore, we might lump together the millions of consumers in the U.S. economy and treat them as if they were one huge unit called "consumers
Positive Economics
focuses on facts and cause-and-effect relationships
Normative Economics
which incorporates value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal.
Words like "what ought to be" or "should have
Economizing Problem
the need to make choices because economic wants exceed economic means�will enhance your understanding of economic models and the difference between microeconomic and macroeconomic analysis
Budget Line
curve that shows various combinations 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. This includes the entire set of factory and farm buildings and all the equipment, tools, and machinery used to produce manufactured goods and agricultural pr
Land
includes all natural resources ("gifts of nature") used in the production process. These include forests, mineral and oil deposits, water resources, wind power, sunlight, and arable land
Labor
consists of the physical actions and mental activities that people contribute to the production of goods and services. The work-related activities of a logger, retail clerk, machinist, teacher, professional football player, and nuclear physicist all fall
Capital
includes all manufactured aids used in producing consumer goods and services. Included are all factory, storage, transportation, and distribution facilities, as well as tools and machinery
Investment
spending that pays for the production and accumulation of capital goods
Entrepreneurial Ability
1. The entrepreneur takes the initiative in combining the resources of land, labor, and capital to produce a good or a service. Both a sparkplug and a catalyst, the entrepreneur is the driving force behind production and the agent who combines the other r
Factors of Production
land, labor, capital, and entrepreneurial ability are combined to produce goods and services
Consumer Goods
products that satisfy our wants directly
Capital Goods
products that satisfy our wants indirectly by making possible more efficient production of consumer goods
Production Possibilities Curve
a curve displays the different combinations of goods and services that society can produce in a fully employed economy, assuming a fixed availability of supplies of resources and fixed technology
Law of Increasing Opportunity Costs
As the production of a particular good increases, the opportunity cost of producing an additional unit rises
Economic Growth
a larger total output
Economic System
a particular set of institutional arrangements and a coordinating mechanism�to respond to the economizing problem. The economic system has to determine what goods are produced, how they are produced, who gets them, how to accommodate change, and how to pr
Command System
also known as socialism or communism. In a command system, government owns most property resources and economic decision making occurs through a central economic plan
Market System
or capitalism, is characterized by the private ownership of resources and the use of markets and prices to coordinate and direct economic activity
Private Property
private ownership of property resources (land and capital)
Freedom of Enterprise
ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets
Freedom of Choice
enables owners to employ or dispose of their property and money as they see fit. It also allows workers to try to enter any line of work for which they are qualified. Finally, it ensures that consumers are free to buy the goods and services that best sati
Self-Interest
is the motivating force of the various economic units as they express their free choices
Competition
competition among businesses in the market
Market
an institution or mechanism that brings buyers ("demanders") and sellers ("suppliers") into contact
Specialization
using the resources of an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services
Division of Labor
human specialization in labor
Medium of Exchange
an intermediary used in trade to avoid the inconveniences of a pure barter system
Barter
swapping goods for goods, say, wheat for oranges
Money
is simply a convenient social invention to facilitate exchanges of goods and services
Consumer Sovereignty
consumers are (sovereign) in command!
Dollar Votes
Consumers spend their income on the goods they are most willing and able to buy
Creative Destruction
The creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business
invisible hand
promote the public or social interest
Circular Flow Diagram
Resources flow from households to businesses through the resource market, and products flow from businesses to households through the product market. Opposite these real flows are monetary flows. Households receive income from businesses (their costs) thr
Households
one or more persons occupying a housing unit
Businesses
commercial establishments that attempt to earn profits for their owners by offering goods and services for sale. Businesses fall into three main categories
Sole Proprietorship
a business owned and managed by a single person. The proprietor (the owner) may work alone or have employees. Examples include a woman who runs her own tree-cutting business and an independent accountant who, with two assistants, helps his clients with th
Partnership
form of business organization is a natural outgrowth of the sole proprietorship. In a partnership, two or more individuals (the partners) agree to own and operate a business together. They pool their financial resources and business skills to operate the
Corporation
an independent legal entity that can�on its own behalf�acquire resources, own assets, produce and sell products, incur debts, extend credit, sue and be sued, and otherwise engage in any legal business activity
Product Market
the place where the goods and services produced by businesses are bought and sold
Resource Market
households sell resources to businesses
The slope of a graph measures the rate of change in one variable as the other variable changes? True or False
True
Economists always place the dependent variable on the vertical axis and the independent variable on the horizontal axis in all cases? True or False
False
A relationship created by an upsloping graph means that an:
Decrease in the value of one variable causes the value of the other to decrease
A tradeoff exists between two economic goals, X and Y. This tradeoff means that:
Getting more of X requires getting less of Y
There are two sets of points on a straight line in a two-variable graph with y on the vertical axis and x on the horizontal axis. If one set of points is (0,6) and the other was (6,18) the linear equation would be?
y=6+2x
Which of the following is considered an economic resource?
The shoppers at the mall
The centrally planned system used by the Soviet Union and pre-form China lacked...?
Entrepreneurship
If two variables are directly related they will always graph as:
An upsloping line
When illustrating graphically the relationship between the price of a stock and the quantity of stock purchased, it is usually the case that:
Other variables are assumed to be constant
A recurring theme in economics is that people:
Have unlimited wants, and limited resources
What, according to the economist Donald Bourdeaux in the Last Word section of the chapter, best explains why the decentralized market system is not a random, chaos mess?
People chose the course of action that promises the highest reward, and in the process promoting efficiency and growth in the society