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Lesson 1

Introduction to Economics

TermDefinition
Scarcity the situation in which unlimited wants exceed the limited resources available to fulfill those wants.
Economics the study of the choices people make to attain their goals, given their scarce resources.
Market group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
Market Analysis analysis that involves comparing marginal benefits and marginal costs.
Microeconomics the study of how households (families that live in houses) and firms (companies) make choices, how they interact in markets, and how the government attempts to influence their choices.
Macroeconomics the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Economic Models a simplified version of reality used to analyze real-world economic situations.
Opportunity Cost the highest-valued alternative that must be given up to engage in an activity.
Trade-off the idea that because of scarcity, producing more of one good or service means producing less of another good or service.
Three fundamental questions: What goods and services will be produced? How will the goods and services be produced? Who will receive the goods and services produced?
Constrained Optimisation: Choices consumers have to do the best with what they have.
Constrained Optimisation: Consumers decisions based on how big their budget is.
Constrained Optimisation: What consumers try to achieve maximize their utility (make themselves as happy / content as possible) based on their limited financial budget.
Constrained Optimisation: Producers companies (also known as firms or businesses), want to maximize profits.
Profit income from sales (also known as revenue), minus the costs of running the business.
Producers make decisions based on What consumers want, and How much it costs to make i.e. how to make goods and services most efficiently
Factors of Production a combination of land, labour and capital.
Productive efficiency the situation in which a good or service is produced at the lowest possible cost.
Allocative efficiency a good or service's marginal benefit is equal to its marginal cost.
Voluntary exchange the situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.
Equity the fair distribution of economic benefits.
Positive statements economic statements explain economic facts i.e. average income in the UAE is AED 26,000 per month.
Normative statements economic statements present a value judgment i.e. average income in the UAE should be higher than AED 26,000 per month.
Centrally planned economy an economy in which the government decides how economic resources will be allocated i.e. North Korea
Market economy an economy in which the decisions of households and firms interacting in markets allocate economic resources. Only really exists in theory, however the USA comes close.
Mixed economy an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
Entrepreneur person who sets up a business or businesses, taking on financial risks in the hope of profit.
Innovation any improvement in a good or in the means of producing a good.
Technology process used to produce goods or services.
Firm, company, or business organization that produces a good or service.
Goods goods we can see, touch also called tangible goods.
Services activities done for others, services, also called intangible goods.
Revenue payments received by businesses from selling goods and services. 
Household word used to identify a consumer.
Consumer individual who buys products or services for personal use and not for manufacture or resale.
Land natural resources, i.e trees, ocean, fertile land, minerals, sunshine
Labour human resources, physical or mental
Capital man-made resources used in the production process i.e. machines in a factory
Enterprise organizing land, labour and capital in the production of goods or services
Human Capital the knowledge, skill sets and intangible assets that add economic value to an individual.
Created by: carolynjm
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