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| the study of how people use their scarce resources to satisfy their unlimited wants ($=scarce resource) |
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| inputs, or factors of production, used to produce the goods and services that people want; resources consist of land, labor, capital, and entrepreneurial ability (human resources) |
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| the phiscal and mental (new- service society vs industrial) effort used to produce goods and services |
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| buildings, equipment, and human skill used to produce goods and service |
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| "gifts of nature" used to produce goods and services, includes renewable and exhaustible resources |
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| managerial and organization skills needed to start a firm, combined with willingness to take risks |
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| payment of resources for labor |
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| payment for use of capital |
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| payment for use of natural resources |
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| reward for entrepreneurial ability, revenue from sales minus cost of resources used by the entrepreneur |
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| tangible item used to satisfy human wants |
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| activity (intangible) used to satisfy human wants |
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| occurs when the amount people desire exceeds the amount available at a zero price |
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| set of arrangements through which buyers and sellers carry out exchange and mutually agreeable terms |
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| good or service is bought or sold (consumers) |
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| resource is bought or sold (business/industry) |
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| diagram that outlines the flow of resources, products, income, and revenue among economic decision makers |
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| incremental, additional, or extra; used to describe a change in an economic variable (1) |
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| study of economic behavior in particular markets, such as that for computers or unskilled labor |
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| study of economic behavior of entire economics |
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| simplification of reality used to make predictions about cause and effect in the real world |
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| system for coordinating socities productive activities |
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| production and consumption are the result of decentralized decisions by many firms and individuals, each individual producer makes what he or she thinks will be most profitable; each consumer buys what he or she chooses (opposite = command economy) |
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| measure, such as a price or quantity, that can take on different values |
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| other-things-constant-assumption |
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| when focusing on the relation among key variables, other variables remain unchanged |
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| describes expected behavior of economic decision makers; what motivates them |
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| theory about relationships among key variables (forms and tests) |
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| the way in which the individual pursuit of self-interest can lead to good results for society wholly |
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| microeconomics (book definition) |
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| studies how people make decisions and how they can intereact (invisible hand = key theme) |
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| macroeconomics (book definition) |
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| concerned with the overall ups and downs of the economy |
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| decision by an individual of what to do, which necessarily involves a decision of what not to do |
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| anything that is used to produce something else (land, labor, capital, human capital) |
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| quantity of resource isn't large enough to satisfy all productive uses |
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| what you must give up in order to get it |
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| when you compare the costs and benefits of doing something |
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| decisions about whether to do a bit more or a bit less of an activity |
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| study of marginal decisions (example: what is an acceptable rate of side effects from a new medicine?) |
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| anything that offers rewards to people who change their behavior |
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| my choices affect your choices, and vice versa - feature of most economic situations. Results often are different from what individuals intend. |
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| goods and services are provided and received (market economy). People divide tasks among themselves. |
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| why we have an economy and not many self-sufficient individuals - people can benefit and get more of what they want |
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| each person specializes in one task that he or she is good at performing |
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| when no individual would be better off doing something different |
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| people are better off without making others worse off when taking opportunities, producing the maximum gains from trade possible given the resources available |
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| everyone gets his or her fair share |
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| positive economic statement |
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| statement that can be proved or disproved by data/reference to facts |
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| normative economic statement |
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| statement that represents an opinion that cannot be proved or disproved |
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| association-is-causation fallacy |
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| the incorrect idea that if two variables are associated in time, one must necessarily cause the other |
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| incorrect belief that what is true for the indiviual or part, must necessarily be true for the group, or whole. |
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| unintended consequences of economic actions that may develop slowly over time as people react to events |
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| the value of the best alternative forgone when an item or activity is chosen |
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| a cost that has already been incurred in the past, cannot be recovered, and thus is irrelevant for the present and future economic decisions |
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| law of comparative advantage |
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| individual, firm, region, or country with the lowerst opportunity cost of producing a particular good should specialize in that good (David Ricardo) |
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| the ability to produce something using fewer resources than other producers use (Adam Smith) |
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| ability to produce something at a lower opportunity cost than other producers face |
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| the direct exchange of one good for another without using money (then and now) relevance today. not debt. |
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| organizing production of a good into its separate tasks |
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| focusing work effort on a particular product or a single tasks |
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| production possibilities frontier |
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| a curve showing the alternative combinations of goods that can be produced when available resources are used fully and efficiently |
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| the condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another good |
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| law of increasing opportunity costs |
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| to produce each additional increment of a good, a successively larger increment of an alternative good must be sacrificed if the economy's resources are already being used efficiently |
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| an increase in the economy's ability to produce goods and services; an upward shift of the production possibilities frontier |
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| an economic system characterized by the private ownership or resources and the use of prices to coordinate economic activity in unregulated markets |
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| economic system charactierized by the private ownership of some resources and the public ownership or others; some markets unregulated and others are regulated (sweden & norway) |
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| economic system characterized by the public ownership of resources and centralized planning - state owns everything |
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| a market in which there are many buyers and many sellers of the same good or service |
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| model of how a competitive market works |
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| how much of a good or service consumers will buy at different prices |
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| graphical representation of the demand schedule |
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| the actual amount consumers are willing to buy at some specific price |
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| the higher the price of a good, given all other things equal, the less people will demand for that good |
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| shift in the demand curve |
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| change in the quantity demanded and any given price, represented by the change of the original demand curve to a new position, denoted by a new demand curve |
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| movement along the demand curve |
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| the change in the quantity demanded of a good that is the result of a change in that good's price |
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| two goods whose consumption are inversely related in terms of price (either/or) |
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| two goods whose consumption are directly related in terms of price (movie tickets + popcorn) |
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| a good whose demand increases with an increase in income |
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| a good whose demand decreases with an increase in income |
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| the actual amount of a good or service people are willing to sell at some specific price |
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| how much of a good or service producers are willing to supply at a different price |
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| how much of a good or service producers are willing to suply at a different price |
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| graphical representation of supply schedule |
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| change in quantity supplied of a good or service at any given price. it is represented by the change of the original supply curve to a new position, denoted by a new supply curve |
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| movements along the supply curve |
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Definition
| change in quantity supplied of a good that is the result of a change in that good's price |
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| good produced to produce another good |
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| price at which the quanitity supplied equals the quantity demanded |
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| another name for equilibrium price |
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| quantity supplied of a good exceeds the quantity demanded. this occurs when the price is above the equilibrium level |
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| quantity demanded of a good exceeds the quantity supplied. this occurs when the price is below the equilibrium level. |
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| legal restrictions of how high/low a market price may go |
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| max price sellers are allowed to charge for a good |
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| min price buyers are required to pay for a good |
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| exists when there are missed opportunities - ways in which production or consumption could be rearranged that would make some people better off without making other people worse off |
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| inefficient allocation to consumers |
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| people who want a good and are willing to pay a high price don't get it, and those who care relatively little about the good are only willing to pay a low price to get it |
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| people who spend money and expend effort in order to deal with the shortages caused by the price ceiling |
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| inefficiently low quality |
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| sellers offer low-quality goods at a low price even though buyers would prefer better quality at a higer price |
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| market in which goods or services are bought and sold illegally - either because it is illegal to sell them at all or becaouse the prices charged are legally prohibited by a price ceiling |
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| legal floor on the wage rate, which is the market price of labor |
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| inefficient allocation of sales among sellers |
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| those who would be willing to sell the good at the lowest price are not always those who actually manage to sell it caused by price floors |
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| inefficiency high quality |
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| sellers offer high quality goods at a high price, even though buyers would prefer a lower quality at a lower price |
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Definition
| an upper limit on the quantity of some good that can be bought or sold. the total amount of the good that can be legally transacted is the quota limit. |
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| the price at which consumers will demand that quantity |
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| price at which producers will supply that quantity |
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| tax on sales of a good or service |
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| measure of who really pays taxes |
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| simplified representation of a real situation that is used ot better understand real-life situations |
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| illustrates the trade-offs facing an economy that produces only two goods. It shows the max quantity of one good that can be produced for any given quantity produced of the other. |
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| person or group of people that share their income |
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| organization that produces goods and services for sale |
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| markets for goods and services |
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| firms sell goods and services that they produce to households |
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| place where factors of production occur - firms buy resources that they need to produce |
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| simple production of the future - models are especially useful for answering "what if" questions |
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| another name for equilibrium price. clears the market by ensuring that every buyer willing to pay that price finds a seller willing to sell at that price |
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| when sales and purchases tend to converge at a uniform price |
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