Unit 1 – Basic Economic Concepts

question

Economics
answer

The study of how people to use scarce resources to satisfy relatively unlimited wants
question

Microeconomics
answer

The study of the decision-making of individuals, households, and businesses
question

Macroeconomics
answer

The study of entire economic systems, looking at the overall economic performance and at aggregates
question

Scarcity
answer

Condition arising from our wants exceeding the resources’ ability to satisfy them
question

Positive statement
answer

Evaluations of what is, what can be tested
question

Normative statement
answer

Evaluations of what ought be, what should be in place
question

Traditional economy
answer

Economic system governed by traditions, customs, belief systems
question

Command economy
answer

Economic system in which the government determines what is produced and in what quantities
question

Market economy
answer

Economic system in which consumers and producers make decisions by “voting with dollars”
question

Mixed economy
answer

Economic system in which elements of other economic systems are mixed together
question

Model
answer

Simplified, small-scale version of some economic aspect
question

Theory
answer

Deliberate simplification of relationships to explain how those relationships work
question

Assumption
answer

Something that is accepted as true or as certain to happen without proof
question

Incentive
answer

Reward or penalty that encourages or discourages an action
question

Ceteris paribus
answer

“With other things held the same”
question

Input
answer

FOP; what is used in the production process to produce a good or service
question

Output
answer

The quantity of goods or services produced by an individual, business, country, etc.
question

Production possibilities frontier
answer

Graphic representation of the different combinations of various goods that a producer can turn out give the available resources and technology
question

Efficiency
answer

Measure of how well resources are being used
question

Inefficiency
answer

State in which resources are not being used at full employment
question

Law of increasing opportunity costs
answer

If units of a resource are added to fixed quantities of other resources, eventually the additional output will decline
question

Unemployment
answer

Number of people who want to work yet are not employed
question

Underemployment
answer

State which exists when resources are not being used in the most efficient way possible
question

Economic resources
answer

All natural, human, or manufactured items that help produce goods and services
question

Land
answer

Natural resources used to produce goods and services
question

Labor
answer

People’s physical and mental talents and efforts that are used to produce goods and services
question

Capital
answer

Human-made goods that are used to produce other things
question

Entrepreneurial ability
answer

Human resource that combines other resources to produce a product, make decisions, innovate, and take risks
question

Trade-off
answer

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
question

Free lunch
answer

Ability to increase production of both goods without giving up anything because resources are being used inefficiently
question

Opportunity cost
answer

Value of next-best alternative that the decision forces the decision-maker to forgo, usually given in terms of another alternative
question

Marginal analysis
answer

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
question

Comparative advantage
answer

The ability of a party to produce a particular good or service at a lower opportunity cost than another party
question

Absolute advantage
answer

The ability of a party to produce more of a good or service than another party using the same amount of resources
question

Optimal decision
answer

The choice that best serves the objectives of the decision-maker
question

Specialization
answer

Use of resources to concentrate production on one or a few good and services
question

Circular flow model
answer

Simple economic model illustrating the flow of goods and services through an economy

Get instant access to
all materials

Become a Member