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Econ (Ch. 1-6)
Terms from Economic Principles
| Question | Answer |
|---|---|
| economics | the study of choices we make among our many wants and desires given our limited resources |
| resources | inputs used to produce goods and services |
| scarcity | exists because our unlimited wants exceed our limited resources |
| the economic problem | scarcity forces us to choose, and choices are costly because we must give up other opportunities that we value |
| rational behavior | people do the best they can, bebased on their values and info, under current and anticpated future circumstance |
| theory | statement or proposition used to explain and predict behavior in the real world |
| hypothesis | a testable proposition |
| empirical analysis | the use of data to test a hypothesis |
| ceteris paribus | holding all other things constant |
| microeconomics | the study of household and firm behavior and how they interact in the marketplace |
| macroeconomics | the study of the whole economy, including the topics of inflation, unemployment, and economic growth |
| aggregate | the total amount-such as the aggregate level of output |
| correlation | when the two events occur together |
| causation | when one event brings about another event |
| fallacy of composition | the incorrect view that what is true for the individual is always true for the group |
| positive statement | an objective, testable statement that describes what happens and why it happens |
| normative statement | a subjective, contestable statement that attempts to describe what should be done |
| scarcity | exists when human wants(material and nonmaterial) exceed available resources |
| labor | the physical & human effort used in the production of goods and services |
| land | the natural resources used in the production of goods and services |
| capital | the equipment and structures used to produce goods and services |
| human capital | the productive knowledge and skill people receive from education, on-the-job training, health, and other factors that increases productivity |
| entrepreneurship | the process of combining labor, land, and capital to produce goods and services |
| goods | items we value or desire |
| tangible goods | items we value or desire that we can reach out and touch |
| intangible goods | goods that we cannot reach out and touch, such as friendship and knowledge |
| services | intangible items of value provided to consumers, such as education |
| economic goods | scarce goods created from scarce resources-goods that are desirable but limited in supply |
| bads | items that we do not desire or want, where less is preferred to more, like terrorism, smog, or poison oak |
| opportunity cost | the value of the best forgone alternative that was not chosen |
| rational decision making | people do the best they can. based on their values and info, under current and anticpated future circumstances |
| rule of rational choice | individuals will pursue an activity if the expected marginal benefits are greater than the expected marginal costs |
| net benefit | the difference between the expected marginal benefits and the expected marginal costs |
| positive incentive | an incentive that either reduces costs or increases benefits, resulting in an increase in an activity or behavior |
| negative incentive | an incentive that either increases costs or reduces benefits, resulting in a decrease in the activity or behavior |
| specializing | concentrating in the production of one, or a few, goods |
| comparative advantage | occurs when a person or country can produce a good or service at a lower opportunity cost than others |
| efficiency | when an economy gets the most out of its scarce resources |
| price controls | government-mandated minimum or maximum prices |
| market failure | when the economy fails to allocate resources efficiently on its own |
| economic growth | the economy's abilities to produce more goods and services |
| productivity | output per worker |
| consumer sovereignty | consumers vote w/ their dollars in a market economy; this accounts for what is produced |
| command economy | an economy in which the gov't uses central planning to coordinate most economic activities |
| market economy | an economy that allocates goods and services thru the private decisions of consumers, input suppliers, and firms |
| mixed economy | an economy where gov't and the private sector determine the allocation of resources |
| labor intensive | production that uses a large amount of labor |
| capital intensive | production that uses a large amount of capital |
| product markets | markets where households are buyers and firms are sellers of goods and services |
| factor (or input) markets | markets where households sell the use of their inputs (capital, land, labor, and entrepreneurship) to firms |
| simple circular flow model | an illustration of the continuous flow of goods, services, inputs, and payments between firms and households |
| production possibilities curve | the potential total output combinations of any two goods for an economy given the available factors of production and available production technology that firms use to turn their inputs into outputs |
| increasing opportunity cost | the opportunity cost of producing additional units of a good rises as society produces more of that good |
| market | the process of buyers and sellers exchanging goods and services |
| competitive market | a market where the many buyers and sellers have little market power-each buyer's or seller's effect on market price is negligible |
| law of demand | the quantity of a good or service demanded varies inversely (negatively) w/ its price, ceteris paribus |
| diminishing marginal utility | the concept that in a given time period, an individual will receive less satisfaction from each successive unit of a good consumed |
| individual demand schedule | a schedule that shows the relationship between price and quantity demanded |
| individual demand curve | a graphical representation that shows the inverse relationship between price and quantity demanded |
| market demand curve | curve the horizontal summation of individual demand curve |
| change in quantity demanded | a change in a good's own price leads to a change in quantity demanded, a movement along a given demand curve |
| shifts in the demand curve | a change in one of the variables, other than the price of the good itself, that affects the willingness of consumers to buy |
| substitutes | two good are substitutes if an increase decrease) in the price of one good causes the demand curve for another good to shift to the right(left) |
| complements | two goods are complements if an increase(decrease) in the price of one good shifts the demand curve for another good to the left(right) |
| normal good | if income increases, the demand for a good increases; if income decreases, the demand for a good decreases |
| inferior good | if income increases, the demand for a good decreases; if income decreases, the demand for a good increases |
| law of supply | the higher(lower) the price of the good, the greater(smaller) the quantity supplied, ceteris paribus |
| individual supply curve | a graphical representation that shows the positive relationship between the price and quantity supplied |
| market supply curve | a graphical rep of the amount of goods and services that sellers are willing and able to supply at various prices |
| market equilibrium | the point at which the market upply and demand curves intersect |
| equilibrium price | the price at the intersection of the market supply and demand curves; at this price, the quantity demanded equals the quantity supplied |
| surplus | a situation where quantity supplied exceeds quantity demanded |
| shortage | a situation where quantity demanded exceeds quantity supplied |
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