Macro Economics Chapter 1 Vocabulary

productive efficiency

a situation in which a good or service is produced at the lowest possible cost

voluntary exchange

a situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction

mixed economy

an economy in which most economic decisions result form the interaction of buyer and sellers in markets but in which the government plays a significant role in the allocation of resources

market economy

an economy in which the decisions of households are firms interacting in markets allocate economic resources

centrally planned economy

an economy in which the government decided how economic resources will be allocated

positive analysis

analysis concerned with what is

normative analysis

analysis concerned with what ought to be

marginal analysis

analysis that involves comparing marginal benefits and marginal costs

allocative efficiency

every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.

economic variable

something measurable that can have different values

equity

the fair distribution of economic benefits

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