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Economics
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The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity.
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Economic Perspective
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A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.
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Scarcity
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The limits placed on the amounts and types of goods and services available for consumption as the result of there being only limited economic resources from which to produce output; the fundamental economic constraint that creates opportunity costs and that necessitates the use of marginal analysis (cost-benefit analysis) to make optimal choices.
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Opportunity Cost
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The amount of other products that must be forgone or sacrificed to produce a unit of a product.
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Utility
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The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services).
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Marginal Analysis
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The comparison of marginal ("extra" or "additional") benefits and marginal costs, usually for decision making.
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Scientific Method
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The procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws.
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Economic Principle
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A widely accepted generalization about the economic behavior of individuals or institutions.
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Other-Things-Equal Assumption
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The assumption that factors other than those being considered are held constant; ceteris paribus assumption.
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Microeconomics
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The part of economics concerned with (1)decision making by individual units such as a household, a firm, or an industry and (2) individual markets, specific goods and services, and product and resource prices.
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Macroeconomics
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The part of economics concerned with the performance and behavior of the economy as a whole. Focuses on economic growth, the business cycle, interest rates, inflation, and the behavior of major economic aggregates such as the household, business, and government sectors.
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Aggregate
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A collection of specific economic units treated as if they were one unit. Examples: the prices of all individual goods and services are combined into the price level, and all units of output are aggregated into gross domestic product.
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Positive Economics
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The analysis of facts or data to establish scientific generalizations about economic behavior.
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Normative Economics
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The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.
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Economizing Problem
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The choices necessitated because society's economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce).
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Budget Line
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A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices.
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Economic Resources
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The land, labor, capital, and entrepreneurial ability that are used to produce goods and services; the factors of production.
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Land
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In addition to the part of the earth's surface not covered by water, this term refers to any and all natural resources ("free gifts of nature") that are used to produce goods and services. Thus, it includes the oceans, sunshine, coal deposits, forests, the electromagnetic spectrum, and fisheries. Note that land is one of the four economic resources.
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Labor
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Any mental or physical exertion on the part of a human being that is used in the production of a good or service. One of the four economic resources.
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Capital
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Human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; also called capital goods. One of the four economic resources.
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Investment
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In economics, spending for the production and accumulation of capital and additions to inventories. (For contrast, see financial investment.)
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Entrepreneurial Ability
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The human resource that combines the other economic resources of land, labor, and capital to produce new products or make innovations in the production of existing products; provided by entrepreneurs.
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Entrepreneurs
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Individuals who provide entrepreneurial ability to firms by setting strategy, advancing innovations, and bearing the financial risk if their firms do poorly.
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Factors of Production
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The four economic resources: land, labor, capital, and entrepreneurial ability.
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Consumer Goods
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Products and services that satisfy human wants directly.
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Capital Goods
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Goods that do not directly satisfy human wants.
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Production Possibilities Curve
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A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.
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Law of Increasing Opportunity Costs
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The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises.
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Economic Growth
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An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; an increase of real output (gross domestic product) or real output per capita.
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