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economics
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the study of scarcity and choice
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individual choice
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decisions by individuals about what to do, which necessarily involve decisions about what not to do
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economy
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system for coordinating a society's productive and consumptive activities
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market economy
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decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in decisions
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command economy
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industry is publicly owned and a central authority makes production and consumption decisions
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incentives
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rewards or punishments that motivate particular choices
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property rights
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establish ownership and grant individuals the right to trade goods and services with each other
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marginal analysis
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study of the costs and benefits of doing a little bit more of an activity versus a little bit less
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resource
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anything that can be used to produce something else
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land
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all resources that come from nature, such as minerals, timber and petroleum
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labor
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effort of workers
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capital
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refers to manufactured goods used to make other goods and services
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entrepreneurship
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efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and innovating to develop new products and production processes
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scarce
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resource is not available in sufficient quantities to satisfy all the various ways a society wants to use it
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opportunity cost
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real cost of an item; what you must give up in order to get it
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microeconomics
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study of how people make decisions and how those decisions interact
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macroeconomics
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concerned with the overall ups and downs in the economy
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economic aggregates
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economic measures that summarize data across many different markets
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positive economics
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branch of economic analysis that describes the way the economy actually works
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normative economics
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makes prescriptions about the way the economy should work
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business cycle
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short-run alternation between economic downturns, known as recessions, and economic upturns, known as expansions
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depression
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very deep and prolonged downturn
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recessions
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periods of economic downturns when output and employment are failing
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expansions
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recoveries; periods of economic upturns when output and employment are rising
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employment
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number of people currently employed in a country
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unemployment
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number of people who are actively looking for work but aren't currently employed
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labor force
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equal to the sum of employment and unemployment
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unemployment rate
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percentage of the labor force that is unemployed
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output
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quantity of goods services produced
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aggregate output
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economy's total production of goods and services for a given time period
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inflation
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rising overall price level
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deflation
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falling overall price level
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price stability
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when the aggregate price level in an economy is changing only slowly
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economic growth
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increase in the maximum amount of goods and services an economy can produce
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model
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simplified representation used to better understand a real-life situation
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other things equal assumption
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means that all other relevant factors remain unchanged; this is also known as the "ceteris paribus" assumption
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trade-off
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made when you give up something in order to have something
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production possibilities curve
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illustrates the trade-offs facing an economy that produces only two goods; it shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced
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efficient
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in an economy when there is no way to make anyone better off without making at least one person worse off
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technology
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technical means for producing goods and services
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trade
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representative in a market economy; provide goods and services to others and receive goods and services in return
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gains from trade
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people can get more of what they want through trade than they could if they tried to be self-sufficient
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specialization
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creates the increase in output; each person specializes in the task that he or she is good at performing
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comparative advantage
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individual has this when producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people
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absolute advantage
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individual has this when producing a good or service if he or she can make more of it with a given amount of time and resources; having and absolute advantage is not the same thing as having a comparative advantage
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