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| the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants |
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| the economic way of thinking |
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| comparisons of marginal benefits and marginal costs |
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o Observation of facts
o Hypothesis, based on the facts
o Testing of the hypothesis
o Acceptance, modification, or rejection based on facts
o Continued testing evolves into a theory |
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| involves establishing economic theories by gathering, systematically arranging & generalizing from facts |
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| statements about economic behavior or the economy that enable prediction of the probable effects of certain actions |
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| principles, theories, and laws are generalizations; they’re expressed as the tendencies of typical or average consumers, workers, or business firms. |
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| Other things equal assumption/ceteris paribus |
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| economists assume that all other variables except those under immediate consideration are held constant for a particular analysis |
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| recognizes that theories and data can be used to formulate policies-courses of action based on economic principles and intended to resolve a specific economic problem or further an economic goal. |
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| examines either the economy as a whole or its basic subdivisions or aggregate, such as the government, household, and business sectors |
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| collection of specific economic units treated as if they were one unit |
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| looks at specific economic units. At this level of analysis, the economists observes the details of an economic unit, or very small segment of the economy under a figurative microscope. |
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| focuses on facts and cause and effect relationships. Includes; description, theory development, and theory testing (theoretical economics) |
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| incorporates value judgements about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal. |
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| a statement that is valid for an individual part is not necessarily valid for the larger group or whole |
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| “after this-therefore because of this” fallacy/”post hoc”- |
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| you cannot conclude that because event a precedes event b, it is the cause of it. |
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o Society’s economic wants, the economic wants of citizens and institutions-are virtually unlimited and insatiable
o Economic resources-are limited or scarce |
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| all natural, human, manufactured resources that go into the production of goods and services |
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| includes all natural resources, arable land, forests, mineral and oil deposits, and water resources. |
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| capital goods/investment goods. Includes all manufactured aids used in producing consumer goods and services. Included are all tools, machinery, equipment, factory storage, transportation…etc |
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| the process of producing and purchasing capital goods |
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| broad term for all physical and mental talents of individuals available and usable in producing goods and services |
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| land, labor, capital, and entrepreneurial ability. |
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| • Production possibilities table |
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| lists the different combinations of 2 products that can be produced with a specific set of resources. |
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| place where resources or the services of resource suppliers are bought and sold. Household sell resources and businesses buy them |
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| • Production possibilities curve |
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| capital goods on vertical axis, consumer goods on horizontal axis. Each point represents some maximum output of the 2 products. |
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| suggests a complex interrelated web of decision making and economic activity involving businesses and households. They are both buyers and sellers. Businesses buy resources and sell products, households buy products and sell resources. |
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| requires that society produce the right mix of goods and services with each item being produced at the lowest possible unit cost. |
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| • Law of increasing opportunity costs |
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| -the more of a product that is produced, the greater is its opportunity cost |
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| • Capitalism/market system |
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| in this system each participant acts in his/her own best interest. Each individual seeks to maximize its satisfaction or profit through its own decisions regarding consumption or production. |
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| socialism or communism. Government owns most property resources and economic decision making occurs through a central economic plan. |
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| the place where resources or the services of resource suppliers are bought and sold. |
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| -products that satisfy our wants indirectly by making possible more efficient production of consumer goods. |
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| an institution or mechanism that brings together buyers “demanders” and sellers “suppliers” of particular goods and services, or resources |
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| is a schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time |
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| there is a negative relationship between price and quantity demanded |
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| 4. diminishing marginal utility- |
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| in any specific period of time, each buyer of a product will derive less utility frim each successive unit of the product consumed. |
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| indicated that a lower price increases the purchasing power of a buyer’s money income, enabling the buyer to buy more of the product than she or he could buy |
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| downward slope reflects the law of demand. People buy more of a product when its price falls |
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| 8. determinants of demand- |
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| price, consumers taste, # of consumers in the market, consumers incomes, the prices of related goods, and related goods, and consumer expectations about future prices and incomes. Sometimes referred to as demand shifters |
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| or superior goods are products whose demand varies directly with money income. Most products are superior goods. Ex; steaks, furniture, electronic equipment |
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| goods whose demand varies inversely with money income. Ex; when incomes increase, demand for used clothing, retread tires, 3rdhand automobiles decrease |
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| a good that is used together with another good. |
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| a shift of the demand curve to the right (an increase in demand) or to the left (a decrease in demand). It occurs because the consumers state of mind about purchasing the product has been altered in response to a change in one or more of the determinants of demand |
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| 14. change in quantity demanded- |
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| is a movement from one point to another point-from one price-quantity to another-on a fixed demand schedule or demand curve. The cause of such a change is an increase or decrease in the price of the product under consideration. |
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| is a schedule or curve showing the amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period. |
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| as price rises, the quantity supplied rises; as price falls the quantity demanded falls |
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| 18. determinants of supply- |
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or supply shifters
a. resource prices
b. technology
c. taxes and subsidies
d. prices of other goods
e. price expectations
f. number of sellers in the market |
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| means a change in the schedule and a shift of the curve. An increase in supply shifts the curve to the right; a decrease in supply shifts the curve to the left. The cause is a change in one of the determinants of supply |
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| 20. change in quantity supplied- |
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| a movement from one point to another on a fixed supply curve. The cause is a change in the price of the product |
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| 24. equilibrium quantity- |
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| when quantity supplied and quantity demanded are in balance |
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| 25. rationing function of prices- |
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| the ability of the competitive forces of suppky and demand to establish a price at which selling and buying decisions are consistent |
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| sets the maximum legal price a seller may charge for a product or service. A price at or below the ceiling is legal, a price above it is not. |
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| is a minimum price fixed by the government. A price at or above is legal, a price below is not |
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