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62 Cards in this Set

  • Front
  • Back
Fundamental concept of
economics that indicates that there is less of a good freely available from nature than people would like.
Scarcity
The act of selecting among
alternatives.
Choice
An input used to produce
economic goods. Land, labor,
skills, natural resources, and capital are examples. Throughout history, people have struggled to transform available, but limited, resources into things they would like to have- economic goods.
Resource
Human-made resources (such
as tools, equipment, and
structures) used to produce
other goods and services.
They enhance our ability to
produce in the future.
Capital
A fact based on observable
phenomena that is not
influenced by differences in
personal opinion.
Objective
An opinionbased on personal
preferences and value
judgments.
Subjective
Allocatinga limited supply of
a good or resource among
people who would like to have more of it. When price performs the rationing function, the good or resource is allocated to those willing to give up the most Òother thingsÓ in order to get it.
Rationing
A set of definitions, postulates, and principles assembled in a manner that makes clear the "cause-and-effect" relationships.
Economic Theory
Thehighest valued alternative that must be sacrificed as a result of choosing an option
Opportunity cost
Choosingthe option that offers the greatest benefit at the least possible cost.
Economizing behavior
The subjective benefit or satisfaction a person expects from a choice or course of action.
Utility
Term used to describe the effects of a change in the current situation. For example, a producer's marginal cost is the cost of producing an additional unit of a product, given the producer's current facility
and production rate.
Marginal
The indirectimpact of an
event or policy that may not be easily and immediately observable. In the area of policy, these effects are often both unintended and overlooked.
Secondary effects
Developing a theory from
basic principles and testing it against events in the real world. Good theories are consistent with and help explain real-world events. Theories that are inconsistent with the
real world are invalid and must be rejected.
Scientific thinking
The scientific study of "what is" among economic relationships
Positive economics
Judgments about "what ought
to be" in economic matters.
Normative economic views
cannot be proven false because they are based on value judgments.
Normative economics
A Latin term meaning "other
things constant," used when
the effect of one change is being described, recognizing that if other things changed, they also could affect the result.
Economists often describe the effects of one change, knowing that in the real world, other things might change and also exert an effect.
Ceteris paribus
Erroneousview that what is
true for the individual (or the part) will also be true for the group (or the whole).
Fallacy of composition
The branch of economics that
focuses on how human behavior affects the conduct of affairs within narrowly defined units, such as individual households or business firms.
Microeconomics
The branch of economics that
focuses on how human behavior affects outcomes in highly aggregated markets, such as the markets for labor or consumer products.
Macroeconomics
The time, effort, and other
resources needed to search
out, negotiate, and complete
an exchange.
Transaction costs
A personwho buys and sells
goods or services or arranges trades. A middleman reduces transaction costs.
Middleman
The rights to use, control, and obtain the benefits from a good or service.
Property rights
Property rightsthat are
exclusively held by an owner
and protected against invasion by others. Private property can be transferred, sold, or mortgaged at the owner's discretion.
Private-property rights
A curvethat outlines all
possible combinations of total output that could be produced, assuming (1) a fixed amount of productive resources, (2) a given amount of technical knowledge, and (3) full and efficient use of those resources. The slope of the
curve indicates the amount
of one product that must be
given up to produce more of
the other.
Production possibilities curve
The successful introduction
and adoption of a new product or process; the economic application of inventions and marketing techniques.
Innovation
A person who introduces new products or improved technologies and decides which projects to undertake. A successful entrepreneur's actions will increase the value of resources and expand the size of the economic pie.
Enterpreneur
A method that breaks down
the production of a product
into a series of specific tasks, each performed by a different worker
Division of labor
A principlethat states that
individuals, firms, regions,
or nations can gain by specializing in the production of goods that they produce cheaply (at a low opportunity cost) and exchanging them for goods they cannot produce cheaply (at a high opportunity cost).
Law of comparative advantage
A method of organization in
which private parties make
their own plans and decisions with the guidance of unregulated market prices. The basic economic questions of consumption, production, and distribution are answered through these decentralized decisions.
Market organization
The purchase,construction,
or development of resources,
including physical assets, such as plants and machinery, and human assets, such as better education. Investment expands an economy's resources. The process of investment is sometimes called capital formation.
Investment
The technological knowledge
available in an economy at
any given time. The level of
technology determines the
amount of output we can
generate with our limited
resources.
Technology
The creation of a new product or process, often facilitated by the knowledge of engineering and science.
Invention
An economic system in which
productive resources are
owned privately and goods and resources are allocated
through market prices.
Capitalism
Themethod of organization
that relies on public-sector decision making (voting, political bargaining, lobbying, and so on) to resolve basic economic questions.
Collective decision making
A system of economicorgani-
zation in which (1) the ownership and control of the basic means of production rest with the state, and (2) resource allocation is determined by centralized planning rather than market forces.
Socialism
A principle that states there is an inverse relationship between the price of a good and the quantity of it buyers are
willing to purchase. As the
price of a good increases,
consumers will wish to purchase less of it. As the price decreases, consumers will wish to purchase more of it.
Law of demand
Products that servesimilar
purposes. An increase in
the price of one will cause
an increase in demand for the other (examples are hamburgers and tacos, butter and margarine, Microsoft Xbox and Sony Play-Station, Chevrolets and Fords).
Substitutes
The difference between the
maximum price consumers are
willing to pay and the price
they actually pay. It is the net gain derived by the buyers of the good.
Consumer surplus
Products thatare usually
consumed jointly (for example, bread and butter, hot dogs and hot dog buns). A decrease in the price of one will cause an increase in demand for the other.
Complements
The total economiccost of
producing a good or service.
The cost component includes
the opportunity cost of all
resources, including those
owned by the firm. The
opportunity cost is equal to
the value of the production of other goods sacrificed as the result of producing the good.
Opportunity cost of production
An excess of sales revenue
relative to the opportunity
cost of production. The cost
component includes the
opportunity cost of all resources, including those
owned by the firm. Therefore, profit accrues only when the value of the good produced is greater than the value of the
resources used for its
production.
Profit
A deficit of sales revenue
relative to the opportunity cost of production. Losses are a penalty imposed on those who produce goods even though they are valued less than the resources required for their production.
Loss
A principle that states there is a direct relationship between the price of a good and the quantity of it producers are willing to supply. As the price of a good increases, producers will wish to supply more of it. As the price decreases, producers will wish to supply less.
Law of Supply
The difference between the
minimum price suppliers are
willing to accept and the
price they actually receive.
It measures the net gains to
producers and resource suppliers from market exchange. It is not the same as profit.
Producer surplus
An abstract concept encompassing the forces of supply and demand, and the interaction of buyers and sellers with the potential for exchange to occur.
Market
A statein which the conflicting forces of supply and demand are in balance. When a market is in equilibrium, the decisions
of consumers and producers
are brought into harmony with one another, and the quantity supplied will equal the quantity demanded.
Equilibrium
A situation in which all of the potential gains from trade have been realized. An action is efficient only if it creates more benefit than cost. With well-defined property rights and competition, market equilibrium is efficient.
Economic efficiency
The tendency of market prices to direct individuals pursuing their own interests to engage in activities promoting the economic well-being of society.
Invisible hand principle
The market for inputs used to produce goods and services.
Resource market
A legally established maximum price sellers can charge for a good or resource.
Price ceiling
A condition in which the
amount of a good offered for
sale by producers is less than the amount demanded by buyers at the existing price. An increase in price would eliminate the shortage.
Shortage
A legally established minimum price buyers must pay for a good or resource.
Price floor
A condition in which the
amount of a good offered for
sale by producers is greater
than the amount that buyers
will purchase at the existing price. A decline in price would eliminate the surplus.
Surplus
Legislation requiring that workers be paid at least the stated minimum hourly rate of pay.
Minimum wage
A market that operates
outside the legal system,
where either illegal goods are sold or legal goods are sold at illegal prices or terms.
Black market
The way the burdenof a tax is distributed among economic units (consumers, producers, employees, employers, and so on). The actual tax burden does not always fall on those who are statutorily assigned to pay the tax.
Tax incidence
The level or quantity of an
economic activity that is taxed. Higher tax rates reduce the level of the tax base because they make the
activity less attractive.
Tax base
The per-unit amountof the
tax or the percentage rate at which the economic activity is taxed.
Tax rate
The loss of gainsfrom trade to buyers and sellers that occurs when a tax is imposed. The deadweight loss imposes a burden on both buyers and sellers over and above the actual payment of the tax.
Deadweight loss
Government-mandatedprices
that are generally imposed in the form of maximum or minimum legal prices.
Price controls
Another term for deadweight
loss. It reflects losses that occur when beneficial activities are forgone because they are taxed.
Excess burden of taxation