Chapter 1

Front 1

Economics

Back 1

Studies how individuals, institutions and society make the optimal or best choices under conditions of scarcity, for which economic wants are unlimited and the means or resources to satisfy those wants are limited.

Front 2

Economic perspective

Back 2

Has 3 interrelated features

• Opportunity cost
• Utility
• Marginal analysis

Front 3

Opportunity Cost

Back 3

Giving up the next best alternative to the choice that was made

Front 4

Utility

Back 4

The satisfaction derived from goods or services

Front 5

Marginal analysis

Back 5

Asses how the marginal costs of a decision compare with the marginal benefits

Front 6

Economic Principle

Back 6

A highly tested or reliable economic theory

Can be used to predict the likely outcome of an event or action

Front 7

Other-things-equal

Back 7

Limits the influence of other factors when generalizing

Front 8

Economic analysis

Back 8

Conducted at either Microeconomics or macroeconomic level with positive or normative economics

Front 9

Microeconomics

Back 9

Studies the economic behavior of individual, particular markets, firms or industries

Front 10

Macroeconomics

Back 10

Looks at the entire economy of aggregates or sectors, such as households, businesses, or government

Front 11

Positive economics

Back 11

Focuses on facts and is concered with what is, or the scientific analysis of economic behavior

Front 12

Normative economics

Back 12

Suggests what out to be and answers policy questions based on value judgements. Most disagreements among economists involve normative economics

Front 13

Individual Economizing problem

Back 13

• Individuals have limited income to spend
  
• Individuals have virtually unlimited wants for more good and services, and higher-quality goods and services
• The can be shown as a budget line

Front 14

Budget line

Back 14

Shows graphically the combinations of two products a consumer can purchase with their money.

Front 15

Society Economizing problems

Back 15

Economic resources are scarse

Front 16

Economic resources

Back 16

Scarce, natural, or manufactured inputs used to produce goods and services

Sometimes called the factors of production

Front 17

Factors of production

Back 17

Land

Labor

Capital

Entrepenurial ability

Front 18

Land

Back 18

Factor of Production that is physical land or natural resource

Front 19

Labor

Back 19

The contributed Time and abililities of people who are producing goods and services

Front 20

Capital

Back 20

Machines, tools, and equipment used to make other goods and services

Also called investment

Front 21

Entrepreneurial ability

Back 21

Special human talents of individuals who combine the other factors of production

Front 22

Production possibilities model

Back 22

1. Assumes Full employment
   
2. The quantity and quality of resources are fixed
   
3. The state of technology does not change
   
4. There are two types of goods being produced (consumer and capital)
   

Front 23

Production Possibilities Table

Back 23

Indicates the alternative combinations of goods an economy is capable of producing when it has achieved full employment and optimal allocation. The table illustrates the fundamental choice every economy must make: What quantity of each product it must sacrifice to obtain more of another

Front 24

Production possibility Curve

Back 24

Each point on the the curve shows some maximum output of the two goods.

• Bowed out because of the law of increasing opportunity costs- Goods to produce product A are not transferable to produce product B

Front 25

Law of increasing opportunity costs

Back 25

The opportunity cost of producing one more unit of a good increases as more of the good is produced.

Front 26

Optimal allocation

Back 26

Resources are devoted tot he best mix of goods to maximize satisfaction in society.

Determined by Assessing Marginal costs and benefits.

• If Marginal Cost > Marginal benefits, incentive to produce less
• If Marginal Benefit > Marginal Cost, incentive to produce more
• If Marginal Benefit = Marginal Cost, Optimal allocation is acheived

Front 27

Unemployment

Back 27

When the economy is operating at a point inside the production possibilty curve, it means that resources are not fully employed

Front 28

Economic Growth

Back 28

Production possibilities curve shifts outward from economic growth because resources are no longer fixed

Advances in technology

Greater production of capital goods in the present shifts the curve outwards

Trade