Principles of Macroeconomics Chapter 1 – Flashcards
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Economic Perspective
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The economic way of thinking that has several critical and closely interrelated features
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Scarcity
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Goods and services that are in limited supply. Restricts options and demand choices
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Opportunity Costs
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The loss of potential gain from other alternatives when one alternative is chosen. A sacrifice
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Utility
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The pleasure, happiness, or satisfaction obtained from consuming a good or service
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Marginal Analysis
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Refers to the "additional" analysis that focuses on the comparisons of marginal benefits and marginal costs - usually for decision making
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Scientific Method
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1. Observing real-world behaviour and outcomes 2. Formulating a hypothesis 3. Testing the explanation through experimentation 4. Accepting, rejecting and modifying the hypothesis 5. Continuing to to test the hypothesis
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Economic Principle
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A very well-tested and widely accepted theory that is a statement about economic behaviour
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Generalisations
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General ideas and habits relating to economic behaviour or the economy itself. For example, it is a common fact that consumers buy more of a product when its price falls
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Other-things-equal assumption
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The assumption that factors other than those being considered do not change. For example, the relationship between the price of Pepsi and the amount of it purchased - the price varies
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Graphical Expression
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Many economic models are expressed through graphs
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Microeconomics
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The part of economics concerned with decision making by individual customers, workers, house-holds, and business firms
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Aggregate
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A collection of specific economic units treated as if they were one unit
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Macroeconomics
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The part of economics that examines the performance and behaviour of the economy as a whole. It focuses on economic growth, the business cycle, interests rates, inflammation, and the behaviour of major economic aggregates such as the government, household, and business sectors
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Positive Economics
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Focuses on facts and cause-and-effect relationship. It includes description, theory development, and theory testing. It avoids value judgements
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Normative Economics
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Incorporates value judgements about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal
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Economising Problem
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The need to make choices because economic wants exceed economic means
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Budget Line
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A curve that shows various combinations of two producers a consumer can purchase with a specific money income
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Resource Categories
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Economists classify economic resources into four general categories: 1. Land (includes natural resources used in production process) 2. Labour (consists of the physical actions and mental activities that people contribute to the production of goods and services) 3. Capital (includes all manufactured aids used in producing consumer goods and services) 4. Entrepreneurial Ability (human resource) - Also called factors of production or "inputs"
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Investment
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Spending that pays for the production and accumulation of capital goods
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Entrepreneurs
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Employees who perform important economic functions such as: taking the initiative in combining all four resource categories and creating the strategic business decisions. They focus on innovation and the risks and benefits that come with it.
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Consumer Goods
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Products that satisfy our wants directly (e.g. pizza)
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Capital Goods
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Products that satisfy our wants indirectly by making possible more efficient production of consumer goods (e.g. industrial robots that make cars)
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Production Possibilities Model/Curve
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A curve that 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
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Law of Increasing Opportunity Costs
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As the production of a particular good increases, the opportunity cost of producing an additional unit rises
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Unemployment and the production possibilities curve
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Any point inside the production possibilities curve, such as "D", represents unemployment or a failure to achieve full employment
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Economic growth and the production possibilities curve
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The increase in supplies of resources, improvements in resource quality, and technological advances that occur in a dynamic economy move the production possibilities curve outward and to the right, allowing the economy to have larger quantities of both types of goods
