Unit 1 – Basic Economic Concepts – Flashcards
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Economics
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The study of how people to use scarce resources to satisfy relatively unlimited wants
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Microeconomics
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The study of the decision-making of individuals, households, and businesses
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Macroeconomics
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The study of entire economic systems, looking at the overall economic performance and at aggregates
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Scarcity
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Condition arising from our wants exceeding the resources' ability to satisfy them
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Positive statement
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Evaluations of what is, what can be tested
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Normative statement
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Evaluations of what ought be, what should be in place
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Traditional economy
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Economic system governed by traditions, customs, belief systems
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Command economy
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Economic system in which the government determines what is produced and in what quantities
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Market economy
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Economic system in which consumers and producers make decisions by "voting with dollars"
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Mixed economy
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Economic system in which elements of other economic systems are mixed together
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Model
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Simplified, small-scale version of some economic aspect
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Theory
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Deliberate simplification of relationships to explain how those relationships work
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Assumption
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Something that is accepted as true or as certain to happen without proof
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Incentive
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Reward or penalty that encourages or discourages an action
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Ceteris paribus
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"With other things held the same"
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Input
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FOP; what is used in the production process to produce a good or service
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Output
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The quantity of goods or services produced by an individual, business, country, etc.
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Production possibilities frontier
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Graphic representation of the different combinations of various goods that a producer can turn out give the available resources and technology
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Efficiency
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Measure of how well resources are being used
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Inefficiency
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State in which resources are not being used at full employment
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Law of increasing opportunity costs
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If units of a resource are added to fixed quantities of other resources, eventually the additional output will decline
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Unemployment
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Number of people who want to work yet are not employed
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Underemployment
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State which exists when resources are not being used in the most efficient way possible
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Economic resources
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All natural, human, or manufactured items that help produce goods and services
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Land
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Natural resources used to produce goods and services
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Labor
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People's physical and mental talents and efforts that are used to produce goods and services
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Capital
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Human-made goods that are used to produce other things
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Entrepreneurial ability
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Human resource that combines other resources to produce a product, make decisions, innovate, and take risks
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Trade-off
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When all resources are being used efficiently, in order to increase the production of one good, the decision-maker must decrease the production of another good
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Free lunch
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Ability to increase production of both goods without giving up anything because resources are being used inefficiently
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Opportunity cost
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Value of next-best alternative that the decision forces the decision-maker to forgo, usually given in terms of another alternative
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Marginal analysis
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A method of calculating optimal decision by testing whether, and by how much, a small change in a decision will move things toward or away from a goal
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Comparative advantage
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The ability of a party to produce a particular good or service at a lower opportunity cost than another party
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Absolute advantage
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The ability of a party to produce more of a good or service than another party using the same amount of resources
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Optimal decision
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The choice that best serves the objectives of the decision-maker
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Specialization
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Use of resources to concentrate production on one or a few good and services
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Circular flow model
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Simple economic model illustrating the flow of goods and services through an economy
