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46 Cards in this Set

  • Front
  • Back
unlimited wants exceed the limited resources available to fulfill those wants.
study of the choices people make to attain their goals, given their scarce resources.
Economic Model
Simplified versions of reality used to analyze real-world economic situations.
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
Marginal analysis
Analysis that involves comparing marginal benefits and marginal costs.
The idea that because of scarcity, producing more of one good or service means producing less of another good or service.
Centrally Planned Economy
An economy in which the government decides how economic resources will be allocated.
Market economy
An economy in which the decisions of households and firms interacting in markets allocate economic resources.
Mixed economy
An economy in which most economic decisions result from the interactions of buyers and sellers in markets, but in which the government plays a significant role in the allocation of resources.
Productive efficiency
The situation in which a good or service is produced at the lowest possible cost.
Productive efficiency
The situation in which a good or service is produced at the lowest possible cost.
Allocative efficiency
A state of the economy in which production reflects consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
Voluntary exchange
The situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.
The fair distribution of economic benefits.
Economic variable
Something measurable that can have different values, such as the wagees of software programmers.
Economic variable
Something measurable that can have different values, such as the wages of software programmers.
Positive analysis
Analysis concerned with what is.
Normative analysis
Analysis concerned with what ought to be.
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
3 Important ideas within Markets
1. People are rational
2. People Respond to economic incentives
3. Optimal decisions are made at the margin.
People are Rational
Economists generally assume that people are rational.
It does mean that economists assume that consumers and firms use all available information as they act to achieve their goals.
*Rational individuals weigh the benefits and costs of each action, and they choose an action only if the benefits outweigh the costs.*
People Respond to Economic Incentives
Consumers and firms consistently respond to economic incentives.
Optimal Decisions are made at the Margin.
Instead, most decisions involve doing a little more or a little less.
The Economic Problem that Every Society Must Solve
1. What goods and services will be produced?
2. How will the goods and services be produced?
3. Who will receive the goods and services produced?
What kind of Economy do we the U.S. have?
Mixed Economy
What are the two types of efficiency?
Productive Efficiency and Allocative Efficiency
Voluntary Exchange
When Markets tend to be efficient because they promote competition and facilitate this...
There is often a ______ tradeoff between efficiency and equity.
a HYPOTHESIS in an economic model
is a statement that may be either correct or incorrect about an economic variable.
Economics is about_____, which measures the costs and benefits of different courses of action.
Positive Analysis
Microeconomics policy issues would be:
anayzing the most efficient way to reduce teenage smoking, analyzing the costs and benefits of approving the sale of a new prescription drug, and reducing air pollution.
Innovation vs. Invention
Invention--development of a new good or a new process for making a good.

Innovation--is the practical application of an invention.
the processes it uses to produce goods and services.
Firm, company, or business
an organization that produces a good or service for profit.
are tangible merchandise, such as books, comuters, or DVD players.
are activities done for others, such as providing haircuts or investment advice.
the total amount received for selling a good or service.
Opportunity Cost
the highest-valued alternative that must be given up to engage in that activity.
the difference between its revenue and its costs.
are suppliers of factors of production--particularly labor--used by firms to make goods and services.
Factors of production or economic resources
used to prouce goods & services

factors of production--labor, capital, human capital, natural resources--including land and entrepreneurial ability
What are the 2 types of Capital?
Financial or Physical Capital
Financial Capital
includes stocks and bonds used by firms, bank accounts, and holding of money.
Physical Capital
manufactured goods that are used to produce other goods and services.
Capital Stock
the total amount of physical capital available in a country is referred to as the country's...