Microeconomics Online Chapter 1 Vocabulary

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economics

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the study of how society allocates scarce resources to the production of goods and services in order to satisfy unlimited wants

given society's limited resources, this is a study of choices

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scarcity

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no society has enough resources to produce the goods and services to satisfy human wants

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resources

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The basic catagories of inputs used to produce output

They are also called factors of production

3 kinds: land, labor, and capital.

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land

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It is an expression used in economics for natural resources. It includes anything natural below or above ground such as oil, water, fish, natural gas, iron ore, and forests. The resources can be renewable like water and forests. Because their supply is finite, resources such as oil and natural gas are nonrenewable resources.

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labor

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It is the physical and mental capacity of workers to produce products. Both the skills and the number of people available to work measure the this resource.

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entrepreneurs

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a special type of labor. They are people who in search of profits, take risks starting a buisiness, create products, or invent new ways of doing tasks.

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capital

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This consists of human-made resources such as tools, software, machines, factories, office buildings, and shopping malls. This does not directly satisfy human wants, but is used to produce other products. Economists do not consider money assets as this.

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scientific method

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a procedure in which theories are developed which explain economic behavior.

First step: identify the economic problem.

Second step: build a model. A model enables an understanding of the relationship between variables. It emphasizes only the most important variables needed to explain a situation. A model is a simplified description of the real world.

Third step: test the theory. Data is gathered to determine if the theory is valid.

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ceteris paribus

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Behind every model is the assumption that all other factors or variables are held constant.

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macroeconomics

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This is the study of economics on the large scale. This is the study of an economic system.

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microeconomics

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This is the study of economics on the small scale. This is the study of individual decision-making units; buisiness firms and housholds. It is the study of how firms compete with each other, make choices about producing, pricing, hiring, and how individual consumers make choices about how much to buy.

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positive economics

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This kind of economics explains and describes economic behavior. It is an objective look at economics.

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normative economics

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This kind of economics looks at what ought to be. It involves value judgements resulting in an opinion being voiced. It is a subjective look at economics.

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economic standards

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Economists use two of these to determine economic policies and evaluate economic decisions: efficiency, and equity or equality.

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efficient

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Since resources are scarce in a society, it should not waste or misuse them. This kind of economy will allocate resources to the goods and services that society wants at the lowest cost.

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allocative efficiency

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The standard that states: if a shortage of a product occurs, that indicates that not enough resources are allocated to it. If a surplus occurs, that means that too many resources are being used to produce the output. Inneficiencies can arise from government policies or if one firm controls a market and deliberately reduces output to earn more profit.

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equity or equality

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This standard refers to the distribution of income among the members of society. It is a subjective standard because this lies in the eyes of the beholder.

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trade off

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There is always this between efficiency and equity. Efforts to improve one will be at the cost of the other.