Chapter 1: Limits, Alternatives, and Choices – Flashcards
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economics
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the social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity.
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economic perspective
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a viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.
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opportunity cost
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the amount of other products that must be forgone or sacrificed to produce a unit of a product.
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utility
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the want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service.
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marginal analysis
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the comparison of marginal ("extra" or "additional") benefits and marginal costs, usually for decision making.
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scientific method
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the procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws.
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economic principle
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a widely accepted generalization about the economic behavior of individuals or institutions.
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other-things-equal assumption (ceteris paribus)
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the assumption that factors other than those being considered are held constant.
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macroeconomics
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the part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy
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aggregate
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a collection of specific economic units treated as if they were one, for example, all prices of individual goods and services are combined into a price level, or all units of output are aggregated into gross domestic product.
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microeconomics
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the part of economics concerned with decision making by individual units such as a household, a firm, or an industry and with individual markets, specific goods and services, and product resource prices.
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positive economics
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the analysis of facts or data to establish scientific generalizations about economic behavior.
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normative economics
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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.
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economizing problem
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the choices necessitated because society's economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited.
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budget line
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a line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices.
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economic resources
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the land, labor, capital, and entrepreneurial ability that are used in the production of goods and services; production agents; factors of production
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land
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natural resources ("free gifts of nature") 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 help produce goods and services.
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capital
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human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants.
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investment
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spending for the production and accumulation of capital and additions to inventories.
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entrepreneurial ability
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the human resource that combines the other resources to produce a product, makes nonroutine decisions, innovates, and bears risks.
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consumer goods
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products and services that satisfy human wants directly
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production possibilities curve
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a curve showing the different combinations of goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.
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law of increasing opportunity cost
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the principle that as the production of a good increases, the opportunity cost of producing an additional unit rises.
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economic growth
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an outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology.
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fallacy of composition
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the false notion that what is true for the individual (or part) is necessarily true for the group (or whole)
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post hoc, ergo propter hoc fallacy
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the false belief that when one event precedes another, the first event must have caused the second event
