Introduction to Economics 1-3

Economics

The study of how people make choices in the face of scarcity, the study of how people seek to satisfy their needs and wants by making choices

Microeconomics

branch of economic theory that deals with behavior and decision making by small units such as individuals and firms

positive economics

descriptions of what is

labor

human resources; reward-wages

scarcity

limited quantities of resources to meet unlimited wants

mixed economy

market-based economic system with limited government involvement

Economic Security

safety net to insure people have the basic necessities of life if they are unable to provide for themselves.

economic growth

the ability of the economy to produce increasing quantities of goods and services

unlimited wants

the insatiable desire of consumers for goods and services that will give them satisfaction or utility

Human capital

the knowledge and skills that workers acquire through education, training, and experience; reward - interest

full employment

use of all available resources

utility

usefulness

efficiency

using resources in such a way as to maximize the production of goods and services

price stability

No sudden increase or decrease in the overall price of goods

Marginal

One more or one less

incentives

Rewards that are offered to try to persuade people to take certain economic actions

The Law of Increasing Costs

That fact that opportunity cost of additional units of a good generally increases as production of more units in attempted. This why the PPC is bowed out.

Ceteris Paribus Assumption

The assumption that nothing changes except the factor or factors being studied.

Economic Freedom

Allows individuals to make economic decisions that they believe are in their own best interest

market economy

An economic system in which people choose freely what to buy and sell

Macroeconomics

the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth

wants

things that you would like to have but are not necessary for survival

traditional economy

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.

economic good

Any item that is scarce

Three Economic Questions

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

equity

a condition in which people receive from a relationship in proportion to what they give to it.

Shortage

a situation in which a good or service is unavailable; a temporary situation

economic model

a theory or simplified representation that helps explain and predict economic behavior in the real world

physical capital

all human-made goods that are used to produce other goods and services; tools and buildings; reward; interest

tradeoff

alternatives that must be given up when one makes a choice

command economy

an economic system in which the government makes all economic decisions

production possibility frontier

illustrates the trade-offs facing an economy that produces only two goods; shows the maximum quantity of one good that can be produced for any given quantity produced of the other

factors of production

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

land

natural resources that are used to make goods and services; reward - rent

limited resources

not enough resources to satisfy all our wants

entrepreneur

person who organizes and uses the other three factors; reward- profit

need

something like air, food, or shelter that is necessary for survival

normative economics

statements about what ought to be (value judgement)

opportunity cost

the most desirable alternative given up as the result of a decision.