Chapter 1 Notes

Front 1

Economics

Back 1

a social science focusing on how societies allocate scarce resources to satisfy virtually unlimited wants and needs

Front 2

Microeconomics

Back 2

studies the decisions of individuals, households, and forms.

Front 3

Macroeconomics

Back 3

Studies economic aggregates, such as the national unemployment rate, the rate of inflation, and the economy's growth rate, as well as macroeconomic polices designed to promote full employment, price stability, and a healthy rate of economic growth.

Front 4

Positive economics

Back 4

Deals with statements about what is true, which can be tested against facts.

Front 5

Normative economics

Back 5

deals with statements of what should be and requires value judgements.

example: government should do something to help low income families obtain health insurance.

Front 6

ceteris paribus

Back 6

"all other things unchanged"

-remains constant

Front 7

the fallacy of false cause

Back 7

occurs when it is assumed that because one event follows another, the first event must have caused the second

Front 8

the fallacy of division

Back 8

occurs when it is incorrectly assumed that what is good, or true, for the whole is also good, or true, for the parts

Front 9

the fallacy of composition

Back 9

occurs when it is incorrectly assumed that what is true for the parts is also true for the whole

Front 10

scarcity

Back 10

exists because there are not enough resources to produce everything people want and need.

Front 11

resources

Back 11

include all the inputs used to manufacture goods and provide services

Front 12

factors of production

Back 12

-land and other Natural resources

-labor services

-capital (structures and equipment)

-entrepreneurial ability

Front 13

land & other natural resources

Back 13

land, timber, water, minerals, climate, and other gifts of nature

Front 14

Labor

Back 14

services represent the physical and mental talents of people

Front 15

Capital

Back 15

refers to the structures that have been built and the machines, tools, and equipment that have been produced in the past, which can now be used to produce goods and provide services

Front 16

Entrepreneurs

Back 16

innovators who start or operate a business with the expectation of earning profit

Front 17

Opportunity Cost

Back 17

the value of the next best alternative, or the best option that must be given up when a choice is made

Front 18

cost-benefit analysis

Back 18

the benefits must outwiegh the costs for an action to have a positive net benefit

Front 19

Marginal benefit

Back 19

is the additional benefit created when an action is taken, such as consuming one more unit of output

Front 20

Marginal cost

Back 20

is the additional cost incurred when an action is taken, such as producing one more unit of output

Front 21

capitalism

Back 21

is an economic system in which resources are privately owned and decisions about how to use those resources are made by individuals and firms

Front 22

Capitalism or Free market economy

Back 22

there is private property and decentralized decision-making

Front 23

Command or Socialist economy

Back 23

government owns or controls most resources and uses central planning to decide how to allocate resources

Front 24

exported

Back 24

sold in other countries

Front 25

imported

Back 25

purchased from other countries

Front 26

trade surplus

Back 26

when the value of exports exceeds the value of imports

Front 27

trade deficit

Back 27

when the value of imports exceeds the value of exports

Front 28

Balance of trade

Back 28

when the value of exports equals the value of imports