Economics

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Economics

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the study of limited resources in response to unlimited wants

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Scarcity

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a situation in which there are too few resources to meet all human wants, i.e. oil, doctors, humans

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The Margin

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the cutoff point; decision making at the margin refers to deciding on one more or one less of something

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Microeconomics

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analyzes the individual components of the economy, such as the choices made by people, firms, and industries.

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Macroeconomics

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analyzes economic total, such as total employment, output, growth, and inflation. The big picture

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GDP (Gross Domestic Product)

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measures the market value of a country’s collective output—the market value of the goods and services that a country produces in one year.

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Markets

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make possible the voluntary exchange of resources, goods, and services; can take physical, electronic, and other forms

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Market prices

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serve as signals the guide the allocation of resources.

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What?

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What goods and services will be produced and offered for sale and in what quantities?

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How?

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How will goods and services be produced?

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For Whom?

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Who will consume the goods and services that are produced?

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Command and Control

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government decrees that direct economic activity

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Free Market

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the collective decisions of individual buyers and sellers that, taken together, determine (the three ?s) what outputs are produced, how those outputs are produced, and who receives the outputs; free markets depend on private property and free choice

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Mixed Economies

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the mixture of free-market and command-and-control methods of resource allocation that characterize modern economies

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Equity

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fairness

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Efficiency

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means that resources are used in ways that provide the most value; implies that no one can be made better off without someone else becoming worse off

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Technological Efficiency

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the greatest quantity of output for given inputs; likewise, for any given output, requires the least-cost production technique; uses resources for the best price (lowest cost)

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Allocative Efficiency

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involves choosing the most valuable mix of outputs to produce; the best combination of “things” for the most value

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Comparative Advantage

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What I do best for the best value

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Absolute Advantage

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the ability to produce a good with a fewer resources than other producers

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Market Failure

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situation in which the market outcome is inefficient

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Opportunity Costs

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the value of the best alternative opportunity forgone. The most valuable alternative to what you’re doing

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Marginal Opportunity Cost

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the additional opportunity cost from choosing an additional unit

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Land

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natural resources in their natural states; crude oil

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Labor

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the human ability to work

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Human Capital

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acquired skills and abilities embodied within a person; schools

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Capital

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anything that is produced in order to increase productivity in the furture; includes human capital and physical capital

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Entrepreneurship

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personal initiative to combine resources in productive ways; involves human capital and physical capital

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Technology

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possible techniques of production

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Production Possibilities Frontier

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a model that shows the various combinations of two goods the economy is capable of producing

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Money

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a medium of exchange to prevent bartering; a measure of value

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Law of increasing cost

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the rise in the marginal opportunity cost of producing a good as more of that good is produced

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Trade

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allows to consume things I can't produce

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Economic Growth

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the ability of the economy to produce more or better output

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Barter

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the exchange of goods and services directly for another. without the use of money

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Circular Flow

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a model of the economy that depicts how the flow of money facilitates a counter flow of resources, goods, and services in the input and output markets (See pg. 42)

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Output Market

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the market where goods and services are bought and sold

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Input Market

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the market where resources are bought and sold

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Demand (consumers)

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Goods at a certain price, at a certain time; aka demand schedule or demand curve

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Quantity Demand

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the quantity that consumers would purchase at a given price

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Ceteris Paribus

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holding all else constant; isolate the demand curve

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Law of Demand

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as price falls, the quantity demanded increases

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Normal Goods

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goods vary directly ↑↑ with income

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Inferior Goods

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goods vary inversely ↑↓

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Substitutes

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something that takes the place of something else, such as one brand of cola for another

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Complements

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goods and services that go well with each other, such as cream with coffee

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Supply

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relates the quantity of a good that will be offered for sale at each of various possible prices, over some period of time

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Quantity Supplied

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the quantity that will be offered for sale at a given price

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Law of Supply

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as price rises, the quantity supplied increases

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Market Equilibrium

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a situation in which there is no tendency for either price or quantity to change

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Surplus

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the excess of quantity supplied over quantity demanded, which occurs when price is above equilibrium

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Shortage

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the excess of quantity demanded over quantity supplied, which occurs when price is below equilibrium