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macro midterm
| Question | Answer |
|---|---|
| economics | social science that examines how people choose among the alternatives available to them |
| scarcity | condition in which people attempt to meet unlimited wants with limited resources |
| scarce good | good for which the choice of 1 alternative requires that another be given up |
| free good | good for which the choice of 1 doesn't require that another be given up |
| economy | any organization that produces goods & services & then allocates them to people for use |
| first question every economist has to answer | what should be produced |
| second question every economist has to answer | how should goods & services be produced |
| third question every economist has to answer | for whom should goods & services be produced |
| allocate | have to decide how to divide the stuff that was made |
| market system | individual buyers & sellers determine who'll receive the goods & services the economy has produced based on who's willing & able to pay |
| opportunity cost | value of the best alternative forgone in making any choice |
| first distinguishing feature economic approach to choice from other social sciences | economists give special emphasis to the role of opportunity costs in their analysis of choices |
| second distinguishing feature economic approach to choice from other social sciences | economists assume that individuals make self-interested choices in order to attain some clearly defined objective |
| optimization | maximizing the value of desirable things or minimizing the value of undesirable things |
| third distinguishing feature economic approach to choice from other social sciences | economists argue that individuals pay attention to the consequences of small changes in the levels of the activities they pursue |
| utility | economists assume that individual consumers make choices in order to maximize their satisfaction |
| margin | current level of an activity |
| choice at the margin | decision to do a little more or less of something |
| microeconomics | branch of economics that focuses on the choices made by consumers & firms & the impacts those choices have on individual markets |
| macroeconomics | branch of economics that focuses on the impact of choices on the total or aggregate level of economic activity |
| variable | something whose value can change |
| constant | something whose value doesn't change |
| scientific method | systemic set of procedures through which knowledge is created |
| hypothesis | assertion of a relationship between 2 or more variables that could be proven to be false |
| theory | hypothesis that hasn't been rejected after widespread testing & that wins general acceptance |
| law | theory that has been subjected to even more testing & has won virtually universal acceptance |
| model | set of simplifying assumptions about some aspect of the real world |
| ceteris paribus | latin phrase that means "all other things unchanged" |
| independent variable | variable that causes or induces a change in another variable |
| dependent variable | variable that responds to change |
| fallacy of false cause | incorrect assumption that 1 event causes another because the 2 events tend to occur together |
| positive statement | statement of fact or a hypothesis |
| normative statement | statement that makes a value judgment |
| production possibilities model | model that shows the goods & services that an economy is capable of producing its opportunities given the factors of production & the technology it has available |
| economic system | set of rules that define how an economy's resources are to be owned & how decisions about their use are to be made |
| factors of production | resources available to the economy for the production of goods & services |
| utility | value or satisfaction that people derive from the goods & services they consume & the activities they pursue |
| labor | human effort that can be applied to the production of goods & services |
| capital | factor of production that has been produced for use in the production of other goods & services |
| natural resources | resources of nature that can be used for the production of goods & services |
| capital stock | collection of buildings machines & other productive goods & services |
| labor force | people who would like to work but haven't found employment who are unemployed which measures the human power available to the economy |
| human capital | knowledge of skills people accumulate through experience education & training |
| 1st criteria for any resource to be considered capital | resource must have produced |
| 2nd criteria for any resource to be considered capital | resource can be used to produce other goods & services |
| financial capital | forms of funding including money & other "paper" assets (such as stocks & bonds) that represent claims on future payments |
| technology | knowledge that can be applied to the production of goods & services |
| entrepreneur | person who operating within the context of a market economy seeks to earn profits by finding new ways to organize the factors of production |
| production possibilities curve | graphical representation of the alternative combinations of goods & services an economy can produce |
| comparative advantage | in producing a good or service the situation that occurs if the opportunity cost of producing that good or service is lower for that economy than for any other |
| law of increasing opportunity cost | as an economy moves along its PPC in the direction of producing more of a particular good the opportunity cost of additional units of that good will increase |
| PPC has a bowed-out shape | law of increasing opportunity cost |
| PPC has a negative slope | reflecting scarcity & trade-offs |
| PPC has no numbers | economists care about capturing the essence of the economy |
| full employment | situation in which all the factors of production that are available for use under current market conditions are being utilized |
| efficient production | when an economy is operating on its PPC |
| inefficient production | situation in which the economy is using the same quantities of factors of production but is operating inside its PPC |
| specialization | situation in which an economy is producing the goods & services in which it has a comparative advantage |
| economic growth | increase in the productive ability of an economy represented by outward shift in an economy's PPC |
| market capitalist economy | economy in which resources are generally owned by private individuals who have the power to make decisions about their use |
| command socialist economy | economy in which government is the primary owner of capital & natural resources & has broad power to allocate the use of factors of production |
| mixed economy | economy that combines elements of market capitalist & command socialist economic systems |
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