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Definition
| The study of how people use their scarce resources to satisfy their unlimited wants |
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| The inputs, or factors of production, used to produce the goods and services that people want; resources consist of labor, capital, natural resources, and entrepreneurial ability |
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| The physical and mental effort used to produce goods and services |
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| The buildings, equipment, and human skills used to produce goods and services |
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| All gifts of nature used to produce goods and services; includes renewable and exhaustible resources |
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| The imagination required to develop a new product or process, the skill needed to organize production, and the willingness to take the risk of profit or loss |
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| A profit-seeking decision maker who starts with an idea, organizes an enterprise to bring that idea to life, and assumes the risk of the operation |
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| Payment to resource owners for their labor |
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| Payment to resource owners for the use of their capital |
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| Payment to resource owners for the use of their natural resources |
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| Reward for entrepreneurial ability; sales revenue minus resource cost |
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| A tangible product used to satisfy human wants |
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| An activity, or intangible product, 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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| A set of arrangements by which buyers and sellers carry out exchange at mutually agreeable terms |
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| A market in which a good or service is bought and sold |
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| A market in which a resource is bought and sold |
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| A diagram that traces the flow of resources, products, income, and revenue among economic decision makers |
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| Each individual tries to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit |
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| Incremental, additional, or extra; used to describe a change in an economic variable |
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| The study of the economic behavior in particular markets, such as that for computers or unskilled labor |
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| The study of the economic behavior of entire economies, as measured, for example, by total production and employment |
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| The rise and fall of economic activity relative to the long-term growth trend of the economy; also called business cycles |
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| economic theory, or economic model |
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| A simplification of reality used to make predictions about cause and effect in the real world |
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| A measure, such as price or quantity, that can take on different values at different times |
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| other-things-constant assumption |
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| The assumption, when focusing on the relation among key economic variables, that other variables remain unchanged; in Latin, ceteris paribus |
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| An assumption that describes the expected behavior of economic decision makers, what motivates them |
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| A theory about how key variables relate |
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| positive economic statement |
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| A statement that can be proved or disproved by reference to facts |
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| normative economic statement |
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| A statement that reflects an opinion, which cannot be proved or disproved by reference to the facts |
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| association-is-causation fallacy |
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Definition
| The incorrect idea that if two variables are associated in time, one must necessarily cause the other |
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| The incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or the 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 foregone when an item or activity is chosen |
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| A cost that has already been incurred, cannot be recovered, and thus is irrelevant for present and future economic decisions |
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| law of comparative advantage |
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Definition
| The individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize in that good |
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| The ability to make something using fewer resources than other producers use |
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| The ability to make something at a lower opportunity cost than other producers face |
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| The direct exchange of one product for another without using money |
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| Breaking down the production of a good into separate tasks |
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| Focusing work effort on a particular product or a single task |
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| production possibilities frontier (PPF) |
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Definition
| A curve showing alternative combinations of goods that can be produced when available resources are used efficiently; a boundary line between inefficient and unattainable combinations |
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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; getting the most from available resources |
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| law of increasing opportunity cost |
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Definition
| To produce more of one good, a successively larger amount of the other good must be sacrificed |
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| An increase in the economy's ability to produce goods and services; reflected by an outward shift of the economy's production possibilities frontier |
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| The set of mechanisms and institutions that resolve the what, how, and for whom questions |
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| An economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets |
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| An owner's right to use, rent, or sell resources or property. |
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| An economic system characterized by the public ownership of resources and centralized planning |
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| An economic system characterized by the private ownership of some resources and the public ownership of other resources; some markets are regulated by government |
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| The satisfaction received from consumption; sense of well-being |
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| Cash or in-kind benefits given to individuals as outright grants from the government |
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| Development of large-scale factory production that began in Great Britain around 1750 and spread to the rest of Europe, North America, and Australia |
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| Economic units formed by profit-seeking entrepreneurs who employ resources to produce goods and services for sale |
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| A firm with a single owner who has the right to all profits but who also bears unlimited liability for the firm's losses and debts |
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| A firm with multiple owners who share the profits and bear unlimited liability for the firm's losses and debts |
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| A legal entity owned by stockholders whose liability is limited to the value of their stock ownership |
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| An organization consisting of people who pool their resources to buy and sell more efficiently than they could individually |
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| not-for-profit organizations |
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Definition
| Groups that do not pursue profit as a goal; they engage in charitable, educational, humanitarian, cultural, professional, or other activities, often with a social purpose |
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| Technological change spawned by the microchip and the Internet that enhanced the acquisition, analysis, and transmission of information |
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| A condition that arises when the unregulated operation of markets yields socially undesirable results |
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| A sole supplier of a product with no close substitutes |
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| One firm that can supply the entire market at a lower per-unit cost than could two or more firms |
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| A good, such as pizza, that is both rival in consumption and exclusive |
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| A good that, once produced, is available for all to consume, regardless of who pays and who doesn't; such a good is nonrival and nonexclusive, such as a safer community |
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| A cost or a benefit that affects neither the buyer nor seller, but instead affects people not involved in the market transaction |
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| The use of government purchases, transfer payments, taxes, and borrowing to influence economy-wide variables such as inflation, employment, and economic growth |
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Definition
| Regulation of the money supply to influence economy-wide variables such as inflation, employment, and economic growth |
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Term
| ability-to-pay tax principle |
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Definition
| Those with a greater ability to pay, such as those earning higher incomes or those owning more property, should pay more taxes |
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| benefits-received tax principle |
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Definition
| Those who get more benefits from the government program should pay more taxes |
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| The distribution of tax burden among taxpayers; who ultimately pays the tax |
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Definition
| The tax as a percentage of income remains constant as income increases; also called a flat tax |
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Definition
| The tax as a percentage of income increases as income increases |
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Definition
| The percentage of each additional dollar of income that goes to the tax |
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Definition
| The tax as a percentage of income decreases as income increases |
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Term
| merchandise trade balance |
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Definition
| The value during a given period of a country's exported goods minus the value of its imported goods |
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Definition
| A record of all economic transactions during a given period between residents of one country and residents of the rest of the world |
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| Foreign money needed to carry out international transactions |
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| A legal limit on the quantity of a particular product that can be imported or exported |
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Definition
| A relation between the price of a good and the quantity that consumers are willing and able to buy per period, other things constant |
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Definition
| The quantity of a good that consumers are willing and able to buy per period relates inversely, or negatively, to the price, other things constant |
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| substitution effect of a price change |
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Definition
| When the price of a good falls, that good becomes cheaper compared to other goods so consumers tend to substitute that good for other goods |
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Definition
| The number of dollars a person receives per period, such as $400 per week |
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Definition
| Income measured in terms of the goods and services it can buy; real income changes when the price changes |
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| income effect of a price change |
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Definition
| A fall in the price of a good increases consumers' real income, making consumers more able to purchase goods; for a normal good, the quantity demanded increases |
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Definition
| A curve showing the relation between the price of a good and the quantity consumers are willing and able to buy per period, other things constant |
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Definition
| The amount of a good consumers are willing and able to buy per period at a particular price, as reflected by a point on a demand curve |
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Definition
| The relation between the price of a good and the quantity purchased by an individual consumer per period, other things constant |
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Definition
| The relation between the price of a good and the quantity purchased by all consumers in the market during a given period, other things constant; sum of the individual demands in the market |
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Definition
| A good, such as new clothes, for which demand increases, or shifts rightward, as consumer income rises |
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Definition
| A good, such as used clothes, for which demand decreases, or shifts leftward, as consumer income rises |
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Definition
| Goods, such as Coke and Pepsi, that relate in such a way that an increase in the price of one shifts the demand for the other rightward |
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Definition
| Goods, such as milk and cookies, that relate in such a way that an increase in the price of one shifts the demand for the other leftward |
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Definition
| Consumer preferences; likes and dislikes in consumption; assumed to remain constant along a given demand curve |
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| movement along a demand curve |
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Definition
| Change in quantity demanded resulting from a change in the price of the good, other things constant |
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Definition
| Movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good |
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Definition
| A relation between the price of a good and the quantity that producers are willing and able to sell per period, other things constant |
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Definition
| The amount of a good that producers are willing and able to sell per period is usually directly related to its price, other things constant |
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Definition
| A curve showing the relation between price of a good and the quantity producers are willing and able to sell per period, other things constant |
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Definition
| The amount offered for sale per period at a particular price, as reflected by a point on a given supply curve |
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Definition
| The relation between the price of a good and the quantity an individual producer is willing and able to sell per period, other things constant |
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Definition
| The relation between the price of a good and the quantity all producers are willing and able to sell per period, other things constant |
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| movement along a supply curve |
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Definition
| Change in quantity supplied resulting from a change in the price of the good, other things constant |
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Definition
| Movement of a supply curve left or right resulting from a change in one of the determinants of supply other than the price of the good |
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| The costs of time and information required to carry out market exchange |
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Definition
| At a given price, the amount by which quantity supplied exceeds quantity demanded; a surplus usually forces the price down |
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| At a given price, the amount by which quantity demanded exceeds quantity supplied; a shortage usually forces the price up |
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| The condition that exists in a market when the plans of buyers match those of sellers, so quantity demanded equals quantity supplied and the market clears |
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Definition
| The condition that exists in a market when the plans of buyers do not match those of sellers; a temporary mismatch between quality supplied and quantity demanded as the market seeks equilibrium |
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| A minimum legal price below which a product cannot be sold; to have an impact, a price floor must be set above the equilibrium price |
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| A maximum legal price above which a product cannot be sold; to have an impact, a price ceiling must be set below the equilibrium price |
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