Microeconomics, Mcconnell, 18Ed., Chapter 1

Front 1

Economics

Back 1

The social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

Front 2

Features of Economic Perspective

Back 2

1. Scarcity and Choice

2. Purposeful Behavior

3. Marginal Analysis: Benefits and Costs

Front 3

Scarcity

Back 3

Limited goods and services that restricts options and demands choices.

Front 4

"There is no free lunch".

Back 4

You may not pay, but someone has to.

Front 5

Opportunity Cost

Back 5

The amount of products that must be forgone to produce a unit of another product.

Front 6

Individuals look for and pursue opportunities to increase their ______.

Back 6

utility

Front 7

Utility

Back 7

The satisfaction or pleasure one obtains from the consumption of a good or service.

Front 8

Economic decisions are rational because we weigh...

Back 8

costs and benefits.

Front 9

Oftentimes, "proper" economic decisions are not reached because of...

Back 9

faulty logic and emotion.

Front 10

Rational self-interest is not the same as...

Back 10

selfishness.

Front 11

"Free" products may or may not be free to individuals--they are never free to _______.

Back 11

society

Front 12

Marginal (in economic terms)

Back 12

"extra," " additional," or "a change in."

Front 13

Marginal Analysis

Back 13

The comparison of marginal benefits and marginal costs. (Also known as: cost/benefit analysis).

Front 14

The scientific method used in economics as well as the hard sciences consists of:

Back 14

1. Observing behaviors and outcomes.
2. Hypothesize based on observations.
3. Test hypothesis.
4. Accept, reject, or modify hypothesis.

Front 15

Economic Law or Economic Principle

Back 15

A well-tested and widely accepted economic theory.

Front 16

Economic Model

Back 16

A simplified representation of how something works in the economy-- a tool to explain cause and effect.

Front 17

Characteristics of Economic Principles:

Back 17

1. Generalizations (not true in every instance).

2. Other-Things-Equal Assumption (other variables except those being considered remain constant).

3. Graphical Expression.

Front 18

Microeconomics

Back 18

The part of economics concerned with individual units such as a person, a household, a firm, or an industry.

Front 19

Macroeconomics

Back 19

The part of economics concerned with the economy as a whole or its basic subdivisions or aggregates such as government, household, and business sectors.

Front 20

Aggregate

Back 20

A collection of economic units treated as a whole (i.e. households)

Front 21

Macroeconomics uses aggregates to obtain...

Back 21

an overview of the economy in relation to these aggregates.

Front 22

Many topics in economics are rooted in...

Back 22

both microeconomics and macroeconomics.

Front 23

Positive Economics

Back 23

The analysis of facts or data to establish scientific generalizations about economic behavior.

Front 24

Normative Economics

Back 24

Focuses on value judgments about what the economy should be like (policy economics).

Front 25

Economizing Problem

Back 25

The need to make choices because economic wants exceed economic means.

Front 26

Budget Line (Budget Constraint)

Back 26

A line that shows the different combinations of two products one could purchase with a given amount of money.

Front 27

Trade-off

Back 27

The sacrifice of some of all of one economic goal, good, or service to achieve some other goal, good, or service.

Front 28

Economic Resources include:

Back 28

1. Land

2. Labor

3. Capital

4. Entrepreneurial Ability

Front 29

Land includes ________.

Back 29

natural resources

Front 30

Labor includes...

Back 30

physical and mental talents of individuals.

Front 31

Capital (or Capital Goods)

Back 31

Human-made resources used to produce consumer goods and services.

Front 32

Consumer goods satisfy...

Back 32

consumer wants directly.

Front 33

Capital goods satisfy consumer wants _______.

Back 33

indirectly

Front 34

Money produces nothing. Therefore, it is not classified as an ___________.

Back 34

economic resource

Front 35

Money capital or financial capital is simply a means for...

Back 35

purchasing capital goods.

Front 36

Entrepreneurial Ability

Back 36

The human resource that combines the other resources to produce a product, makes non-routine decisions, innovates, and bears risks.

Front 37

Factors of Production (Inputs)

Back 37

Economic Resources (land, labor, capital, and entrepreneurial ability).

Front 38

Full Employment

Back 38

The use of all available resources to produce goods and services.

Front 39

Fixed Resources

Back 39

Any resource whose quantity cannot be changed by a firm in the short run.

Front 40

Fixed Technology

Back 40

The state of technology is constant.

Front 41

Production Possibilities Curve

Back 41

A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.

Front 42

Points on a production possibilities curve are attainable as long as...

Back 42

all available resources are being used.

Front 43

Points lying inside a production possibilities curve are attainable, but represent...

Back 43

less than full production.

Front 44

Points lying beyond a production possibilities curve are ________.

Back 44

unattainable

Front 45

Law of Increasing Opportunity Cost

Back 45

The principle that as the production of a good increases, the opportunity cost of producing a second item rises. (Illustrated by the increasing slope of the production possibilities curve).

Front 46

Optimal allocation of resources to produce a given item occurs when...

Back 46

marginal cost equals marginal benefit (at the intersection of their graphs).

Front 47

In the depths of the Great Depression of the 1930s, ___ of U.S. workers were unemployed and ___ of U.S. production capacity was idle.

Back 47

1/4, 1/3

Front 48

When an increase in the quality or quantity of resources occurs,...

Back 48

the production possibilities curve expands outwardly (economic growth).

Front 49

5 Pitfalls to Sound Economic Reasoning

Back 49

1. Biases (against corporations, government, etc.)
2. Loaded Terminology in the Media (emotionally biased).
3. Fallacy of Composition (what is true for an individual may not be true for an entire group).
4. Post Hoc Fallacy (a preceding event does not always cause the current event).
5. Correlation but Not Causation (events may be correlated without one causing the other).

Front 50

Technological Advances allow the production of more goods with...

Back 50

available resources.

Front 51

Economic Growth is the result of:

Back 51

1. Increases in the supplies of resources.

2. Improvements in resource quality.

3. Technological advances.

Front 52

Static (no-growth) economies must sacrifice...

Back 52

one good or service to increase another.

Front 53

When an economy invests in future goods (capital goods, research and education, preventive medicine, etc.),...

Back 53

it increases its future production capacity and economic growth (at the opportunity cost of fewer present goods).

Front 54

2 Ways to obtain greater economic output:

Back 54

1. Expansion of domestic production.

2. International trade.