Chapter 1 Vocabulary (Essential Foundations of Economics 7th Seventh Edition) – Flashcards

Is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity, the incentives that influence those choices, and the arrangements that coordinate them.

Is the condition that arises because wants exceeds the ability of resources to satisfy them. Faced with scarcity, we must make choices - we must choose among the available alternatives. The choices we make depend on the incentives we face. Examples Oil Gold Diamonds

The study of the choices that individuals and businesses make and the way these choices interact and are influenced by governments.

The study of the aggregate (or total) effects on the national economy and the global economy of the choices that individuals, businesses, and governments make.

are the objects (goods) and actions (services) that people value and produce to satisfy human wants.

The choices that are best for the individual who makes them are choices made in the pursuit of

The choices that are best for society as a whole are choices made in the

• Choice is a tradeoff • Cost is what you must give up to get something • Benefit is what you gain from something • People make rational choices by comparing benefits and costs • Most choices are "how much" choices made at the margin • Choices respond to incentives

is an exchange—giving up one thing to get something else.

is the best thing that you MUST give up to get something—the highest-valued alternative forgone.

is the gain or pleasure that something brings. It is measured by what you are WILLING TO GIVE UP

is a choice that uses the available resources to best achieve the objective of the person making the choice. We make this type of choice by comparing COSTS and BENEFITS

A choice made at this, it is a choice made by comparing ALL the relevant alternatives systematically and incrementally

is the opportunity cost of a one-unit increase in an activity. This type of cost of something is what you MUST give up to get ONE ADDITIONAL unit of it.

is what you gain when you get one more unit of something This type of benefit of something is MEASURED by what you are WILLING to give up to get ONE ADDITIONAL unit of it

Most likely your professor will test you on whether you know the difference between Marginal Cost and Marginal Benefit. Marginal Cost is the opportunity cost of a one-unit increase in an activity. This type of cost of something is what you MUST give up to get ONE ADDITIONAL unit of it... while... Marginal Benefit is what you gain when you get one more unit of something. This type of benefit of something is MEASURED by what you are WILLING to give up to get ONE ADDITIONAL unit of it.

(ΔTotalCost) divided by (ΔQuantity) This formula will be brought up later in Microeconomics, later in your semester if that's how your professor does it. It's good to just familiarize yourself with it [MC=(ΔTC/ΔQ)]

is a reward or a penalty—a "carrot" or a "stick"—that encourages or discourages an action.

is a description of some feature of the economic world that includes only those features assumed necessary to explain the observed facts.