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| A situation in which unlimited wants exceed the limited resources available to fulfill those wants. |
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| is the study of the choices people make to attain their goals, given their scarce resources. |
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| A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. |
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Definition
People are rational
People respond to economic incentives
Optimal decisions are made at the margin |
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| marginal cost and benefit (MC and MB) |
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Definition
| the additional cost or benefit associated with a small amount extra of some action |
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| The idea that, because of scarcity, producing more of one good or service means producing less of another good or service. |
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| The highest-valued alternative given up in order to engage in some activity |
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| Centrally planned economy |
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Definition
| An economy in which the government decides how economic resources will be allocated. |
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Definition
| An economy in which the decisions of households and firms interacting in markets allocate economic resources. |
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| An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources. |
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Definition
| where goods or services are produced at the lowest possible cost; and |
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Definition
| where production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it. |
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| Productive efficiency comes... |
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Definition
| about because of competition. |
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Term
| Allocative efficiency arises... |
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Definition
| due to voluntary exchange. |
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Term
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Definition
| A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction. |
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| Caveats about Market Economies |
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Definition
People might not immediately do things in the most efficient way
Governments might interfere with market outcomes
Market outcomes might ignore the desires of people who are not involved in transactions – ex: pollution |
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Definition
| The fair distribution of economic benefits. |
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| something measurable that can have different values, such as the incomes of doctors. |
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| good models generate testable predictions, which can be verified or disproven using data. |
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Definition
analysis concerned with what is
Economists mostly perform positive analysis. |
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Definition
| analysis concerned with what ought to be |
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Term
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Definition
| the study of how households and firms make choices, how they interact in markets, and, how the government attempts to influence their choices |
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Definition
| the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. |
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Definition
| the processes a firm uses to produce goods and services |
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Definition
| manufactured goods that are used to produce other goods and services |
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