Intro to Economics
Terms
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- Economics
- The study of how people make choices in the face of scarcity
- Scarcity
- The shortage that exists when less of something is available than is demanded at a price of zero
- Wants
- What people would buy if their resources were unlimited
- Economic Good
- Any item that is scarce
- Free Good
- A good which is not scarce (S > D when Price = 0)
- Economic Bad
- Any item which we would pay to have less of
- Incentives
- Rewards for engaging in an activity.
- The factors of production
- Land, labor, capital, human capital and entrepreneurship
- Land
- All natural resources such as timber, minerals, soil and even natural beauty itself
- Labor
- The physical service of people--muscle power
- Capital
- Tools that are used in production of other goods---these are things we invest in which we do not directly consume
- Human Capital
- The mental services of people--education, training, skills
- Entrepreneurship
- Organizational and risk taking abililities
- Rationality Assumption
- The assumption in economics that people will choose options that make them better off
- Positive Economics
- Descriptions of what is
- Normative Economics
- Statements about what ought to be (value judgement)
- Microeconomics
- The study of econ at the level of the individual or the firm
- Macroeconomics
- The study of the economy as a whole
- Ceteris Paribus Assumption
- The assumption that nothing changes expect the factor being studied.
- Economic Model
- A formal presentation of economic theory
- Induction
- Constructing a genreal theory on the basis of observation
- Deduction
- Constructing a general theory on the basis of assumptions and logic
- Opportunity Cost
- The highest value alternative that must be forgone when a choice is made
- Tradeoff
- Giving up one good in order to get another
- PPC
- Production Possibility Curve--a graphic representation showing the maximum quantity of goods and services that can be produced using limited resouces to the fullest extent
- Marginal Opportunity Costs
- The ammount of one good or service that must be given up to obtain one additional unit o fanother good or service
- The Law of Increasing Costs
- That fact that opportunity cost of additional units of a good generally increases as production of more units in attempted. This why the PPC is bowed out.
- Efficiency
- When an imput produces the maximum possible output. Or, the situation in which a given output is produced at minimun cost.
- Marginal Cost
- Cost of one more unit
- Marginal Benefit
- Additional benefit of one more unit.
- Inefficient Point
- Not producing to maxmimum potential. (Any point below the PPC.)
- Absolute Advantage
- Being able to produce more of a good (or at a lower cost) than someone else.
- Comparative Advantage
- The ability to produce a good or service at a lower opportunity cost (relative cost) than someone else.