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Chapter 1
What is Economics?
34
Economics
Undergraduate 1
10/20/2009

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Term
scarcity
Definition
our inability to satisfy all our wants
Term
incentive
Definition
a reward that encourages an action or a penalty that discourages one
Term
economics
Definition
the social science that studies the choices that individuals, business, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices
Term
microeconomics
Definition
the study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments
Term
macroeconomics
Definition
the study of the performance of the national economy and the global economy
Term
Two big questions summarize the scope of economics:
Definition
  • How do choices end up determining what, how, and for whom goods and services are produced?
  • How can choices made in pursuit of self-interest also promote the social interest?
Term
list 4 factors of production
Definition
  • land
  • labor
  • capital
  • entrepreneurship
Term
land
Definition
natural resources
Term
labor
Definition
work time and work effort that people devote to producing goods and services
Term
human capital
Definition
the knowledge and skill that people obtain from education, on-the-job training, and work experience
Term
capital
Definition
the tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services
Term
entrepreneurship
Definition
the human resource that organizes labor, land, and capital
Term
Land earns...
Definition
rent.
Term
Labor earns...
Definition
wages.
Term
Capital earns...
Definition
interest.
Term
Entrepreneurship earns...
Definition
profit.
Term
self-interest
Definition
a choice is in your self-interest if you think that choice is the best one available for you
Term
social interest
Definition
self-interested choices promote the social interest if they lead to an outcome that is the best for society as a whole - an outcome that uses resources efficiently and distributes goods and services equitably (or fairly) among individuals
Term
Resources are used efficiently when goods and services are produced...
Definition
  1. At the lowest possible cost, and
  2. In the quantities that give the greatest possible benefit.
Term
globalization
Definition
the expansion of international trade, borrowing and lending, and investment
Term
tradeoff
Definition
an exchange - giving up one thing to get something else
Term
big tradeoff
Definition
the tradeoff between equality and efficiency
Term
opportunity cost
Definition
the highest-valued alternative that we must give up to get it
Term
marginal benefit
Definition
the benefit that arises from an increase in an activity
Term
marginal cost
Definition
the cost of an increase in an activity
Term
positive statements
Definition

statements about what is

 

can be tested by checking it against the facts

Term
normative statements
Definition

statements about what ought to be

 

depend on values and cannot be tested

Term
economic model
Definition
a description of some aspect of the economic world that includes only those features that are needed for the purpose at hand
Term
Name 3 economic models.
Definition
  1. natural experiments
  2. statistical investigations
  3. economic experiments
Term
Name 3 economic policies.
Definition
  1. Personal economic policy
  2. Business economic policy
  3. Government economic policy
Term
positive relationship/direct relationship
Definition
a relationship between two variables that move in the same direction
Term
linear relationship
Definition
a relationship shown by a straight line
Term
negative relationship/inverse relationship
Definition
a relationship between variables that move in opposite directions
Term
ceteris paribus
Definition
"if all other relavent things remain the same"
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