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A A E Chap 1
Limits, Alternatives, and Choices
| Term | Definition |
|---|---|
| Economics | The social science concerned with how individuals, institutions, and society make optimal choices under conditions of scrutiny |
| economic Viewpoint | Viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions |
| Scarcity | Limits placed on the amounts and types of goods and services available for consumption as the result of there being only limited economic resources from which to produce output |
| Opportunity Costs | the amount of other products that must be forgone or sacrificed to produce a unit of product |
| Utility | the satisfaction or pleasure a consumer obtains from the consumption of a good or service |
| Purposeful Behavior | People make decisions with some desired outcome in mind |
| Marginal Analysis | comparison of marginal benefits and marginal costs, usually for decision making Should choose where marginal benefit outweighs marginal cost |
| Economic Principle | Widely accepted generalization about economic behavior of individuals or institutions |
| Other Things Equal Assumption | Assumption that factors other than those being considered are held constant |
| Microeconomics | Part of economics concerned with decision making by individual units and individual markets, specific goods and services, and product and resource prices |
| Macroeconomics | part of economics concerned with performance and behavior of the economy as a whole |
| Aggregate | Collection of specific economic units treated as if they are one unit |
| Aggregate Example | Could lump together millions of consumers in US economy and treat them as one unit of "consumers" |
| Positive Economics | Analysis of facts or data to establish scientific generalizations about economic behavior |
| Positive Economics Example | the unemployment rate in France is higher than it is in the US |
| Normative Economics | Part of economics involving value judgements about what the economy should be like, focused on which economic goals and policies should be implemented |
| Normative Economics Example | France ought to undertake policies to make its labor market more flexible to reduce unemployment rates |
| Individual's Economizing Problem | Choices necessitated because society's economic wants for goods and services are unlimited but resources available to satisfy those wants are scarce |
| Limited Income | We have a finite amount of income |
| Unlimited Wants | People have virtually unlimited wants |
| Desires for Goods and Services | Can't be fully satisfied, but want for a particular good or service can be satisfied |
| Budget Line | Line that shows the different specific combinations of two products a consumer can purchase with a specific money income, given products' prices |
| Budget Line Opportunity Cost | Consistent with a straight line budget curve Slope |
| Income Changes on Budget Line | Increase in income shifts budget line R Decrease shifts L |
| Economic Resources (Factors of Production) | Land, labor, capital, and entrepreneurial ability that are used to produce goods and services |
| Land | All natural resources used in production process |
| Land Examples | Forests, mineral and oil deposits, water resources, sunshine, arable land, etc. |
| Labor | Any mental or physical exertion on the part of a human being that is used in the production of a good or service |
| Capital | Man-made physical objects (factories, roads, etc.) and intangible ideas (recipe for cement, etc.) that do not directly satisfy human wants but help to produce goods and services that do |
| entrepreneurial Ability | Special human resource, distinct from labor Supplied by entrepreneurs |
| Entrepreneur Functions | Take initiative in combining resources to produce a good or service Make strategic business decisions Innovate Bear risk |
| Production Possibilities Model Assumptions | Full employment, fixed resources, fixed technology, and two goods |
| Production Possibilities Curve | Curve showing different combinations of two goods or services that can be produced in PPM conditions |
| Law of Increasing Opportunity Costs | Principle that as production of a good increases, the opportunity cost of producing an additional unit rises |
| Optimal Allocation | MC=MB |
| Economic Growth is a Result of.... | Increases in supply of resources, improvements in resource quality, and technology advances |
| Specialization and Trade Increase... | quantities of capital and other consumer goods available to society |
Created by:
Eliana.s
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