Economics Chapter 1

mixed economy

an economy that uses both market and non market signals to allocate goods and resources.

market failure

an imperfection in the market mechanism that prevents optimal incomes.

economic growth

an increase in output (real GDP): an expansion of production possibilities.

externalities

costs (or benefits) of a market activity borne by a third party; the difference between the social and private costs (or benefits) of a market activity.

investment

expenditures on (production of) new plant and equipment (capital) in a given time period, plus changes in business inventories.

government failure

government intervention that fails to improve economic outcomes.

scarcity

lack of enough resources to satisfy all desired uses of thos resources.

factors of production

resource inputs used to produce goods and services; e.g., land, labor, capital, and entrepreneurship.

production possibilities

the alternative combinations of goods and services that could be produced in a given time period with all available resources and technology.

ceteris paribus

the assumption that nothing else changes.

laissez faire

the doctrine of "leave it alone," of nonintervention by government in the market mechanism.

opportunity cost

the most desired goods and services that are forgone in order to obtain something else.

macroeconomics

the study of aggregate economic behavior, of the economy as a whole.

economics

the study of how best to allocate scarce resources among competing uses.

microeconomics

the study of individual behavior in the economy, of the components of the larger economy.

market mechanism

the use of market prices and sales to signal desired outputs (or resource allocations).