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87 Cards in this Set

  • Front
  • Back
efficiently using scarce resources to achieve maximum satisfaction of economic wants
the want-satisfying power of a good or service
features of economic perspective
1. scarcity requires choice and all choice entails a cost

2. views people as rational decision makers who make decisions based on their self-interests

3. how marginal cost compares with marginal benefits
marginal analysis
comparison of marginal (extra or additional)benefits and marginal costs
scientific method
observation of facts, formulating and testing the hypothesis to obtain theories, principles and laws
theoretical economics
gathering and analysis of relevant facts to derive economic principles
predictions of the outcomes of certain actions or events
relating theories, principles, and laws to economics
"other-things-equal" assumption (ceteris paribus)
used to limit the influence of other factors when making a generalization
policy economics
using economic principles to solve economic problems
three steps in creating economic policy
1. stating the goal

2. considering the options

3. evaluating the results
8 major economic goals
1. economic growth

2. full employment

3. economic efficiency

4. price-level stability

5. economic freedom

6. equitable distribution of income

7. economic security

8. balance of trade
making a sacrifice in order to achieve an economic goal
analysis of the government overall (ex. govt, households business)
analysis of econ at a smaller level (details)
collection of specific economic units treated as one
positive economics
analysis of facts and developing theories... looks at what is
normative economics
answers policy questions... looks at what ought to be
fallacy of composition
making a false generalization
"after this, therefore because of this" fallacy (post hoc)
falsely assuming that one thing happend as a result of another
vertical axis
where the dependent variable is
horizontal axis
where the independent variable is
direct relationship
positive relationship (increase in one variable, increase in the other variable)
inverse relationship
negative relationship
(increase in one variable, decrease in the other variable)
dependent variable
changes because of change in another variable
independent variable
produces change in the dependent variable
slope of a straight line
positive slope- direct relationship

negative slope- inverse relationship
vertical intercept
where line intersepts the vertical side of the graph
nonlinear curve
slope changes throughout
economizing problem
how to best use limited productive resources to satisfy wants
economic resources
all resources that go into the prodcution of goods and serrvices

property- land, raw material, capital

human- labor, entrepeneurial ability, etc.
all "gifts of nature"
tools, machinery, equipment, factory
process if producing/purchasing capital
physical and mental services of humans
entreprenurial ability
make strategic business decisions
factors of production
combination of land, labor, capital and e.a. to form goods/services
full employment
use of all available resources
full production
all employed resources must provide maximum satisifaction of economy
productive efficiency
production of any mix of goods or services in the least costly way
allocative efficiency
resources are devoted to the production of goods and services society values most
consumer goods
products that satisfy our wants directly (i.e. pizza)
capital goods
products that satisfy our wants indirectly (i.e. robots)
production possibibilites table
alternative combos of 2 products that can be produced with a specific set of resources (pizza and robots)
circular flow model
clarifies the relationships between households and businesses
opportunity cost
amount of other products that must be sacrificed to obtain 1 unit of a specific good
law of increasing opportunity costs
the more of a product produced, the greater its oppurtunity cost
economic growth
ability to produce a larger total output

1. increases in supply of resources

2. improvements in resource quality

3. technological advances
economic system
a particular set of institutional arrangements and a coordinating mechanism ot respond to the economic problem
market system
use of markets/prices to coordinate and direct economic activity (capitalism)
limited government influence in the economy
command system
government owns economic decisions and resources (communism and socialism)
resource market
place where resources or the services of resource suppliers are bought/sold
product market
place where goods and services produced by businesses are bought/sold
brings together buyers and sellers of goods, services and resources
shows what consumers are willing and able to purchase
demand schedule
list of prices and quantity demanded (table)
law of demand
as prices fall, demand rises and prices rise, demand falls
diminishing marginal utility
less satisfaction is derived from each successive product purchased
income effect
lower price increases the buyers money income, which enables the buyer to purchase more of the product than he would before
substitution effect
people buy whats a better deal (i.e. if chicken is on sale, people will buy it over beef or pork)
demand curve
graphical display of how people buy more of a product as its price falls
determinants of demand
factors that affect purchases on a demand curve
normal good
product whose demand varies with money income (superior goods) (as income increases, more of product is purchased)
inferior good
demand of goods varies inversely with money income (as income increases, less of product is purchased)
substitute goods
a good that can be used in place of another good (chicken and beef)
complementary goods
a good that is used together with another good (gas and motor oil)
change in demand
shift of the demand curve to the right (increase in demand) or to the left (decrease in demand)
change in quantity demanded
movement from one point to another point
quantity demanded
amount of a good or service the buyers desire to purchase at a certain price
individual demand
demand schedule or curve of a single buyer
total or market demand
demand schedule or curve of all buyers of a good or service
schedule or curve that shows what sellers are willing and able to make available for sale
supply schedule
table of supply prices and periods of time
law of supply
increase in price of a product will increase the quantity of it supplied. decrease in price of a product will decrease the quantity of it supplied
quantity supplied
amount of a good or service that producers offer to sell at a particular price during some period
supply curve
curve illustrating supply
determinants of supply
factors other than price that determine the quantities supplied of a good or service
change in supply
shift in curve to the right (increase in supply), shift in curve to the left (decrease in supply)
change in quantity supplied
movement from one point to another
amount by which the quantity supplied of a product exceeds the quantity demanded of a product at an above equilibrium price
amount in which the quantity demanded exceeds the quantity supplied at a particular below equilibrium price
equilibrium price
price where quantity supplied and demanded are equal
equilibrium quantity
quantity demanded and supplied at the equilibrium price in a competitive market, profit maximizing output of a firm
rationing function of prices
change prices so theres no shortage or surplus
price ceiling
maximum legal price something can be sold for (creates shortage)
price floor
lowest legal price something is allowed to be sold for (creates a surplus)