Econ Chapter 1

Opportunity cost

The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.

land

all naturally occurring resources whose supply is inherently fixed. Examples are any and all particular geographical locations, mineral deposits, and even geostationary orbit locations and portions of the electromagnetic spectrum.

Capital

generally refers to financial wealth, especially that used to start or maintain a business. In classical economics, capital is one of three factors of production, the others being land and labor.

guns or butter

he classic economic example of the production possibility curve, which demonstrates the idea of opportunity cost. In a theoretical economy with only two goods, a choice must be made between how much of each good to produce.

tradeoff

is a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect. More colloquially, if one thing increases, some other thing must decrease.

Physical capital

one of the three primary factors of production, also known as inputs production function. The others are natural resources (including land), and labor — the stock of competences embodied in the labor force.

scarcity

the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

Factors of production

the inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include land, labor, capital and entrepreneurship.

Human capital

the stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value.

underutilization

the use of fewer resources than the economy is capable of using

need

As goods or services that are required This would include the needs for food, clothing, shelter and health care.

efficiency

A broad term that implies an economic state in which every resource is optimally allocated to serve each person in the best way while minimizing waste and inefficiency. When an economy is economically efficient, any changes made to assist one person would harm another.

production possibilities curve

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently.

Thinking at the margin

A key economic principle is that rational decision making requires thinking at the margin. This involves a comparison of the additional (or marginal) benefits and costs of an activity.

Economics

A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants

labor

All human exertion in the production of wealth and services. Mental toil is labor as well as muscular effort. All who participate in production by their mental and physical effort are laborers in the economic sense. Thus entrepreneurs as well as blue-collar workers are included.

entrepreneur

An individual who, rather than working as an employee, runs a small business and assumes all the risk and reward of a given business venture, idea, or good or service offered for sale.

Services

In economics, a service is an intangible commodity. That is, services are an example of intangible economic goods. Service provision is often an economic activity where the buyer does not generally, except by exclusive contract, obtain exclusive ownership of the thing purchased.

want

Wants are goods or services that are not necessary but that we desire or wish for.

Cost

a decision depends on both the cost of the alternative chosen and the benefit that the best alternative would have provided if chosen. Economic cost differs from accounting cost because it includes opportunity cost. As an example, consider the economic cost of attending college.

Shortage

a disparity between the amount demanded for a product or service and the amount supplied in a market.

Goods

a material that satisfies human wants and provides utility, for example, to a consumer making a purchase.

law of increasing cost

a principle that states that once all factors of production (land, labor, capital) are at maximum output and efficiency, producing more will cost more than average. As production increases, the opportunity cost does as well.

production possibility frontier

a production-possibility frontier (PPF), sometimes called a production-possibility curve, production-possibility boundary or product transformation curve, is a graph representing production tradeoffs of an economy given fixed resources.