social science
the study of people in society and how they interact with each other
goods
tanglible objects eg: vegetables, meat
services
intangible things eg: haircuts, insurance
needs
something we need to survive eg: food, shelter, clothing
wants
things we would like to have but are not necessary for survival eg: television
economic goods
Goods which are scarce relative to demand and therefore have to be paid for
free goods
Goods that have no opportunity cost to use eg air, sun, sea water
opportunity cost
the next best alternative foregone when an economics decision is made
scarcity
limited quantities of resources to meet unlimited wants
basic economic problem
problem which faces indiciduals, buisness's and governments of satisfying unlimited wants with limited resources.
allocation
the process of choosing which needs will be satisfied and how much of our resources we will use to satisfy them. What to produce? How to produce? How much to produce?
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
positive economics
the branch of economic analysis that describes the way the economy actually works.
normative economics
the part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics
private sector
the part of the economy made up of private individuals and privately owned businesses
public sector
the part of the economy made up of federal, state, and local governments
ceteris paribus
The assumption of nothing else changing.
rationing systems
any system of allocating scarce resources, applied particularly to systems other than the price systems; rationing systems include rationing by coupons and rationing by queues
planned economy
economy that relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions
free market economy
an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets
three economic questions
What goods and services should be produced? How should these goods and services be produced? For whom should these goods and services be produced?
economic growth
an increase in the total output of an economy
economic development
The improvement of living standards by economic growth.
sustainable development
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
production possibility curve
the combination of two goods or services that can be produced efficiently with a given set of resources
traditional system
A system in which customs handed down from generation to generation determine how a society is organized to produce, distribute, and consume goods and services
law of diminishing returns
the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.
a market
a place where buyers (demand) and sellers (supply) meet
effective demand
a want backed by money and the willingness to pay
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
income effect
a change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price.
substitution effect
as a good falls in price it becomes cheaper in relation to other goods
supply
the quantity of a good or service producers are able and willing to supply to a market at a given price
perfect competition
Market situation in which there are numerous buyers and sellers, and no single buyer or seller can affect price.
indirect taxes
Taxes that increase a business firm's costs of production and, therefore, the prices charged to consumers. Examples are sales, excise, and property taxes.
subsidies
a grant or contribution of money, especially one made by a government in support of an undertaking or the upkeep of a thing
equilibrium
the point at which quantity demanded and quantity supplied are equal
disequilibrium
describes any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market
market clearing price
the price at which the amount supplied is equal to the amount demanded