Economics

What Is Economics?

"Economics is the study of how individuals and groups make decisions with limited resources as to best satisfy their wants, needs, and desires."

Ceteris paribus

A Latin phrase that means while certain variables change, "all other things remain unchanged."

invisible hand

Adam Smith's metaphor to explain how an individual's pursuit of economic self-interest can promote the well-being of society as a whole

Market Economy

An economic system where decisions about production, price and other economic factors are all determined by the law of supply and demand.

Incentive

An expectation or reward that encourages people to behave in a certain way.

Complement

Ecross is a negative coefficient.

Substitutes

Ecross is a positive coefficient

The 5 Economic Needs

Food, Shelter, Clothes, Warmth, and Water

Factors of production

Land, labor, and capital; the three groups of resources that are used to make all goods and services

scarcity

Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs.

total revenue

Tells you what happens to total revenue when there is a change in price

Economic System

The method used by a society to produce and distribute goods and services.

The Invisible Hand

The price mechanism, the rise and fall of prices that guides our actions in a market.

capital resources

The tools, equipment, and buildings that are used to produce goods and services

What is considered a positive relationship?

Two variables have a positive relationship when an increase in the value of one variable is associated with an increase in the value of another variable It is illustrated by a curve that slopes upward The supply curve is an example of a positive relationship (positive relationship between price and quantity. As the price increases the quantity available increases)

Three Economic Questions

What goods and services should be produced? How these goods and services should be produced? For whom should these goods and services be produced?

Monopoly

When only one company has control of the market

Globalization

When people and organizations around the world begin to connect through business, economics, and social issues

embargo

a government order imposing a trade barrier; a limit or ban on trade

elasticity of demand for exports

a measure of the responsiveness of the quantity demanded of exports when there is a change in the relative price of exports

incentive

benefit offered to encourage people to act in a certain way

Adam Smith

is often touted as the world's first free-market capitalist. While that designation is probably a bit overstated, Smith's place in history as the father of modern economics and a major proponent of laissez-faire economic policies is quite secure. Read on to learn about how this Scottish philosopher argued against mercantilism to become the father of modern free trade.

scarcity-forces-tradeoffs principle

limited resources force people to make choices and face tradeoffs when they choose.

private property

property owned by individuals or companies, not by the government or the people as a whole

inelastic demand

quantity is insensitive to a change in price

variables have a non-linear relationship

relationship do the variables have if the curve is not a straight line

natural resources

resources (actual and potential) supplied by nature

entrepreneur

someone who organizes a business venture and assumes the risk for it

law of supply

states that when prices decrease, quantity supplied decreases, and when prices increase, quantity supplied increases (when the price goes down so does the amount made; when the price goes up so does the amount made)

Trade-offs

the alternative choices people face in making an economic decision

Opportunity Cost

the cost of the next best alternative among a person's choices-the time, money, or resources that are given up or sacrificed to make the final choice

tradeoff

the exchange of one benefit or advantage for another that is thought to be better.

opportunity cost

the value of something that is given up by choosing one alternative over another

variables have a linear relationship

type of relationship do the variables have if the curve is a straight line?

marginal benefit

what you gain by adding one more unit

Scarcity

when there is not enough of something to satisfy how much everyone wants of it.