Economics Chapter 1

Front 1

scarcity

Back 1

unlimited wants exceed the limited resources available to fulfill those wants.

Front 2

Economics

Back 2

study of the choices people make to attain their goals, given their scarce resources.

Front 3

Economic Model

Back 3

Simplified versions of reality used to analyze real-world economic situations.

Front 4

Market

Back 4

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Front 5

Marginal analysis

Back 5

Analysis that involves comparing marginal benefits and marginal costs.

Front 6

Trade-off

Back 6

The idea that because of scarcity, producing more of one good or service means producing less of another good or service.

Front 7

Centrally Planned Economy

Back 7

An economy in which the government decides how economic resources will be allocated.

Front 8

Market economy

Back 8

An economy in which the decisions of households and firms interacting in markets allocate economic resources.

Front 9

Mixed economy

Back 9

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.

Front 10

Productive efficiency

Back 10

The situation in which a good or service is produced at the lowest possible cost.

Front 11

Productive efficiency

Back 11

The situation in which a good or service is produced at the lowest possible cost.

Front 12

Allocative efficiency

Back 12

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.

Front 13

Voluntary exchange

Back 13

The situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.

Front 14

Equity

Back 14

The fair distribution of economic benefits.

Front 15

Economic variable

Back 15

Something measurable that can have different values, such as the wagees of software programmers.

Front 16

Economic variable

Back 16

Something measurable that can have different values, such as the wages of software programmers.

Front 17

Positive analysis

Back 17

Analysis concerned with what is.

Front 18

Normative analysis

Back 18

Analysis concerned with what ought to be.

Front 19

Microeconomics

Back 19

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Front 20

Macroeconomics

Back 20

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

Front 21

3 Important ideas within Markets

Back 21

1. People are rational
2. People Respond to economic incentives
3. Optimal decisions are made at the margin.

Front 22

People are Rational

Back 22

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.*

Front 23

People Respond to Economic Incentives

Back 23

Consumers and firms consistently respond to economic incentives.

Front 24

Optimal Decisions are made at the Margin.

Back 24

Instead, most decisions involve doing a little more or a little less.

Front 25

The Economic Problem that Every Society Must Solve

Back 25

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?

Front 26

What kind of Economy do we the U.S. have?

Back 26

Mixed Economy

Front 27

What are the two types of efficiency?

Back 27

Productive Efficiency and Allocative Efficiency

Front 28

Voluntary Exchange

Back 28

When Markets tend to be efficient because they promote competition and facilitate this...

Front 29

There is often a ______ tradeoff between efficiency and equity.

Back 29

Trade-off

Front 30

a HYPOTHESIS in an economic model

Back 30

is a statement that may be either correct or incorrect about an economic variable.

Front 31

Economics is about_____, which measures the costs and benefits of different courses of action.

Back 31

Positive Analysis

Front 32

Microeconomics policy issues would be:

Back 32

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.

Front 33

Innovation vs. Invention

Back 33

Invention--development of a new good or a new process for making a good.

Innovation--is the practical application of an invention.

Front 34

Technology

Back 34

the processes it uses to produce goods and services.

Front 35

Firm, company, or business

Back 35

an organization that produces a good or service for profit.

Front 36

Goods

Back 36

are tangible merchandise, such as books, comuters, or DVD players.

Front 37

Services

Back 37

are activities done for others, such as providing haircuts or investment advice.

Front 38

Revenue

Back 38

the total amount received for selling a good or service.

Front 39

Opportunity Cost

Back 39

the highest-valued alternative that must be given up to engage in that activity.

Front 40

Profit

Back 40

the difference between its revenue and its costs.

Front 41

Household

Back 41

are suppliers of factors of production--particularly labor--used by firms to make goods and services.

Front 42

Factors of production or economic resources

Back 42

used to prouce goods & services

factors of production--labor, capital, human capital, natural resources--including land and entrepreneurial ability

Front 43

What are the 2 types of Capital?

Back 43

Financial or Physical Capital

Front 44

Financial Capital

Back 44

includes stocks and bonds used by firms, bank accounts, and holding of money.

Front 45

Physical Capital

Back 45

manufactured goods that are used to produce other goods and services.

Front 46

Capital Stock

Back 46

the total amount of physical capital available in a country is referred to as the country's...