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Lesson 1
Introduction to Economics
| Term | Definition |
|---|---|
| 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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