Economics Chapter 1-3
Land
(RENT)
Production Possibilities Curve
A curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used.
Variable
A measure of something that can take on different values.
Import
A product produced in a foreign country and purchased by residents of the home country.
Export
A product produced in the home country and sold in another country.
Negative Relationship
A relationship in which two variables move in opposite directions.
Positive Relationship
A relationship in which two variables move in the same direction
Economic model
A simplified representation of an economic environment, often employing a graph.
Marginal Change
A small, one-unit change in value.
Principle of Voluntary Exchange
A voluntary exchange between two people makes both people better off.
Centrally Planned Economy
An economy in which a government bureaucracy decides how much of each good to produce, how to produce the good, and who gets the good.
Market Economy
An economy in which people specialize and exchange goods and services in markets.
Positive Analysis
Answers the question "What is?" or "What will be?"
Normative Analysis
Answers the question "What ought to be?"
Marginal Principle
Increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.
natural resources
Resources provided by nature and used to produce goods and services.
Principle of Diminishing Returns
Suppose output is produced with two or more inputs, and we increase one input while holding the other input or inputs fixed. Beyond some point- called the point of diminishing returns- output will increase at a decreasing rate.
Ceteris Paribus
The Latin expression meaning that other variables are held fixed.
Comparative Advantage
The ability of one person or nation to produce a good at a lower opportunity cost than another person or nation.
Absolute Advantage
The ability of one person or nation to produce a product at a lower resource cost than another person or nation.
Marginal Benefit
The additional benefit resulting from a small increase in some activity
Marginal Cost
The additional cost resulting from a small increase in some activity.
Entrepreneurship
The effort used to coordinate the factors of production—natural resources, labor, physical capital, and human capital—to produce and sell products. (PROFIT)
Nominal Value
The face value of an amount of money.
Human Capital
The knowledge and skills acquired by a worker through education and experience. (INTEREST)
Principle of Opportunity Cost
The opportunity cost is something is what yo sacrifice to get it.
Labor
The physical and mental effort people use to produce goods and services. (WAGES AND SALARY)
Factors of production
The resources used to produce goods and services; also known as production inputs, or resources.
Scarcity
The resources we use to produce goods and services are limited.
Physical Capital
The stock of equipment, machines, structures, and infrastructure that is used to produce goods and services. (INTEREST)
Economics
The study of choices when there is scarcity.
Microeconomics
The study of the choices made by households, firms, and government and how these choices affect the markets for goods and services.
Macroeconomics
The study of the nation's economy as a whole; focuses on the issues of inflation, unemployment, and economic growth.
Real Value
The value of an amount of money in terms of what it can buy.
Slope of a Curve
The vertical difference between two points (the rise) divided by the horizontal difference (the run).
Real vs. Nominal Principle
What matters to the people is the real value of money or income- its purchasing power- not its "face" value.
Opportunity Cost
What you sacrifice to get something.