Macroeconomics Chapter 1: What Economics Is About

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Good

Back 1

anything from which individuals receive utility or satisfaction.

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Utility

Back 2

the satisfaction one receives from a good.

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Bad

Back 3

anything from individuals receive disutility or dissatisfaction.

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Disutility

Back 4

the dissatisfaction one receives from a bad.

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Resources

Back 5

1. Land

2. Labor

3. Capital

4. Entrepreneurship

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Resources:

1. Land

Back 6

all natural resources, such as minerals, forests, water and unimproved land.

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Resources:

2. Labor

Back 7

the physical and mental talents people contribute to the production process.

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Resources:

3. Capital

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Produced goods that can be used for further production such as factories machinery, tools, computers and buildings.

Money is not capital!

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Resources:

4. Entrepreneurship

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the particular talent some people have for organizing the resources of land, labor and capital to produce goods, seek new business opportunities and develop new ways of doing things.

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Scarcity

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the condition in which our wants are greater than the limited resources available to satisfy those wants.

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Economics

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the science of scarcity; the science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants.

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Scarcity's Effects

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1. the need to make choices

2. the need for a rationing device

3. competition

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Scarcity's Effects

1. the need to make choices

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in a world of limited resources, we must choose which wants will be satisfied and which will go unsatisfied.

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Scarcity's Effects

2. the need for a rationing device

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a rationing device is a means of deciding who gets that quantities of the available resources and goods.

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Scarcity's Effects

3. competition

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because there are unlimited wants, there is competition for the limited resources.

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Opportunity Cost

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the most highly valued opportunity of alternative forfeited when a choice is made.

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Marginal Benefits

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additional benefits; the benefits connected to consuming an additional unit of a good or undertaking one more unit of an activity.

Graph: MB goes down as time goes on.

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Marginal Costs

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additional costs; the costs connected to consuming an additional unit of a good or undertaking one more unit of an activity.

Graph: MC goes up as time goes on.

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Decisions at the Margin

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decision making characterized by weighing the additional benefits of a change against the additional cost of a change with respect to current conditions.

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Efficiency

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exists when marginal benefits equal marginal costs.

Graph: MB = MC; where MB and MC intersect.

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Exchange (Trade)

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the process of giving up one thing for another.

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Positive Economics

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the study of "what is" in economic matters.

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Normative Economics

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the study of "what should be" in economic matters.

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Microeconomics

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the branch of economics that deals with human behavior and choices as they relate to relatively small units, such as an individual, a firm, an industry, a single market.

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Macroeconomics

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the branch of economics that deals with human behavior and choices as they relate to highly aggregate markets (ex. the good and services market) or the entire economy.