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Rewards or penalties for engaging in a particular activity.

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Incentives

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The study of how people allocate their limited resources to satisfy their unlimited wants.

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Economics

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Things used to produce goods and services to satisfy people's wants.

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Resources

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What people would buy if their incomes were unlimited.

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Wants

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The study of decision making undertaken by individuals or households and by firms.

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Microeconomics

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The study of the behavior of the economy as a whole, including such economywide phenomena as changes in unemployment, the general price level, and national income.

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Macroeconomics

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Total amounts or quantities. Aggregate demand, for example, is total planned expenditures throughout a nation.

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Aggregates

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A society's institutional mechanism for determining the way in which scarce resources are uses to satisfy human desires.

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Economic system

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The assumption that people do not intentionally make decisions that would leave them worse off.

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Rationality assumption

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Economic system that is controlled by a central authority - a queen, dictator, a central government, or some other central authority. For instance, a government might decide that particular types of automobiles ought to be produced in certain numbers. They might issues specific rules for how to marshal resources to produce these vehicles or may establish ownership over those resources so that it can make all decisions directly.

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Centralized Command and Control

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Under a pure price system, individuals and families own all of the scarce resources used in production. Choices about how to produce items are left to private parties.

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The Price System

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The assumption that nothing changes except the factor or factors being studied.

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Ceteris paribus assumption

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Relying on real-world data in evaluating the usefulness of a model.

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Empirical

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An approach to the study of a consumer behavior that emphasizes psychological limitations and complications that potentially interfere with rational decision making.

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Behavioral economics

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The hypothesis that people are nearly, but not fully, rational, so that they cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them.

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Bounded rationality

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Analysis that strictly limited to make either purely descriptive statements or scientific predictions. For example, "If A, then B." A statement of what is.

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Positive economics

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Analysis involving value added judgments about economic policies; relates to whether outcomes are good or bad. A statement of what ought to be.

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Normative economics

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A variable whose value is determined independently of, or outside, the equation under study/

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Independent variable

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A variable whose value changes according to changes in the value of one or more independent variables.

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Dependent variable

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A relationship between two variables that is positive, meaning that an increase in one variable is associated with an increase in the other and a decrease in one variable is associated with a decrease in the other.

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Direct relationship

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A relationship between two variables that is negative, meaning that an increase in one variable is associated with a decrease in the other and a decrease in one variable is associated with an increase in the other.

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Inverse relationship

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A line that can be divided into segments of equal length, each associated with a number.

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Number line

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The vertical axis in a graph

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y axis

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The horizontal axis in a graph

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x axis

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The intersection of the y axis and the x axis in a graph

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Origin

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The change in the y value divided by the corresponding change in the x value of a curve; the "incline" of the curve.

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Slope

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A situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants at a zero price.

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Scarcity

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Any activity that results in the conversion of resources into products that can be used in consumption.

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Production

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The natural resources that are available from nature. Land as a resource includes location, original fertility and mineral deposits, topography, climate, water, and vegetation.

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Land

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Productive contributions of humans who work.

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Labor

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All manufactured resources, including building, equipment, machines, and improvements to land that are used for production.

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Physical capital

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The accumulated training and education of workers.

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Human capital

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The component of human resources that performs the functions of raising capital, organizing, managing, and assembling other factors of productions, making basic business policy decisions and taking risks.

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Enterpreneurship

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All things from which individuals derive satisfaction or happiness.

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Goods

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Goods that are scarce, for which the quantity demanded exceeds the quantity supplied at a zero price.

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Economic goods

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Mental or physical labor or assistance purchased by consumers. Examples are the assistance of physicians, lawyers, dentists, repair personnel. house cleaners, educators, retailers, and wholesalers; items purchased or used by consumers that do not have physical characteristics.

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Services

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The highest-value, next-best alternative that must be sacrificed to obtain something or to satisfy a want.

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Opportunity cost

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A curve representing all possible combinations of maximum outputs that could be produced, assuming a fixed amount of productive resources of a given quality.

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Production possibilities curve

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The total pool of applied knowledge concerning how goods and services can be produced.

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Technology

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The case in which a given level of inputs is used to produce the maximum output possible. Alternatively, the situation in which a given output is produced at minimum cost.

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Effciency

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Any point below the production possibilities curve, at which the use of resources is not generating the maximum possible output.

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Inefficient point

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The fact that the opportunity cost of additional units of a good generally increases as people attempt to produce more of that good. This accounts for the bowed-out shape of production possibilities curve.

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Law of increasing additional cost

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The use of goods and services for personal satisfaction.

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Consupmtion

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The organization of economic activity so that what each person (or region) consumes is not identical to what that person (or region) produces. An individual may specialize, for example, in law or medicine. A nation may specialize in the production of coffee, e-book readers, or digital cameras.

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Specialization

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The ability to produce a good or service at a lower opportunity cost compared to other producers.

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Comparative advantage

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The ability to produce more unites of a good or service using a given quantity of labor or resource inputs. Equivalently, the ability to produce the same quantity of a good or a service using fewer units of labor or resource inputs.

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Absolute advantage

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The segregation of resources into different specific tasks. For instance, one automobile worker puts on bumper, another doors, and so on.

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Division of labor

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All of the arrangements that individuals have for exchanging with one another. thus, for example, we can speak of the labor market, the automobile market, and the credit market.

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Market

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A schedule showing how much of a good or service people will purchase at any price during a specified time period, other things being constant.

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Demand

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The observation that there is a negative, or inverse, relationship between the price of any good or service and the quantity of demanded, holding other factors constant.

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Law of demand

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The money price of one commodity divided by the money price of another commodity, the number of units of one commodity that must be sacrifices to purchase one unit of another commodity.

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Relative price

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The price expressed in today's dollars, also called the absolute or nominal price.

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Money price

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A graphical representation of the demand schedule. It is a negatively sloped line showing the inverse relationship between the price and the quantity demanded (other things being equal).

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Demand curve

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The demand of all consumers in the marketplace for a particular good or service. The summation at each price of the quantity demanded by each individual.

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Market demand

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Determines of the relationship between price and quantity that are unchanged along a curve. Changes in these factors cause the curve to shift.

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Ceteris paribus conditions

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Goods for which demand rises as income rises. Most goods are normal goods.

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Normal goods

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Goods for which demand falls as income rises.

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Inferior goods

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Two goods are complements when a change in the price of one causes an opposite shift in the demand for the other.

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Complements

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A schedule showing the relationship between price and quantity suppolioe

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Supply

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The observation that the higher the price of a good, the more of that good sellers will make available over a specified time period, other things being equal.

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Law of supply

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The graphical representation of the supply schedule, a line (curve) showing the supply schedule, which generally slopes upward (has a positive slope), other things being equal.

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Supply curve

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A negative tax - a payment to a producer from the government usually in the form of a cash grant per unit.

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Subsidy

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The price that clears the market, at which quantity demanded equals quantity supplied; the price where the demand curve intersects the supply curve.

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Market clearing, or equilibrium price

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The situation when quantity supplied equals quantity demanded at a particular price.

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Equilibrium

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A situation in which quantity demanded is greater than quantity supplied at a price below the market clearing price.

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Shortage

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A situation in which quantity supplied is greater than the quantity demanded at a price above the market cleaning price.

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Surplus

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An economic system in which relative prices are constantly changing to reflect changes in supply and demand for different commodities. The prices of those commodities are signals to everyone within the system as to what is relatively scarce and what is relatively abundant.

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Price system

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An act of trading, done on an elective basis, in which both parties to the trade expect to be better off after the exchange.

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Voluntary exchange

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All of the costs associated with exchange, including the informational costs of finding out the price and quality, service record, and durability of a product, plus the cost of contracting and enforcing that contract.

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Transaction costs

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Government-mandated minimum or maximum prices that may be charged for goods and services.

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Price controls

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A legal maximum price that may be charged for a particular good or service.

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Price ceiling

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A legal minimum price below which a good or service may not be sold. Legal minimum wages are an example.

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Price floor

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All methods used to ration scarce goods that are price-controlled. Whenever the price system is not allowed to work, non-price rationing devices will evolve to ration the affected goods and services.

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Nonprice rationing devices

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A market in which goods are traded at prices above their legal maximum prices in which illegal goods are sold.

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Black market

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Price ceilings on rents.

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Rent control

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A wage floor, legislated by government, setting the lowest hourly rate that firms may legally pay workers.

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Minimum wage

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A physical supply restriction on imports of a particular good, such as sugar. Foreign exporters are unable to sell in the United States more than the quantity specified in the import quota.

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Import quota

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The difference between the total amount that consumers would have been willing to pay for an item and the total amount that they actually pay.

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Consumer surplus

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The difference between the total amount that producers actually receive for an item and the total amount that they would have to be willing to accept for supplying that item.

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Producer surplus

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The sum of consumer surplus and producer surplus.

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Gains from trade

Macroeconomics – Pearson Etext Terms (Chap 1-4) – Flashcards

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