ECO 2023: Principles of Microeconomics – Test 1 Key Concepts

is the study of how individuals, firms, and societies make decisions to improve their well-being given limitations.

is the idea that people have unlimited wants but limited resources.

are the factors, both good and bad, that influence how people make decisions.

deals with individual entities, such as individuals, firms, and industries.

deals with aggregate entities, such as cities or the nation.

to build models means that we make use of this assumption and hold some important variables constant. This device often provides surprising insights about economic behavior.

reflects how well resources are used and allocated.

of an outcome is a subjective matter, where differences of opinion exist.

are questions that can be answered one way or another as long as the information is available.

involve societal beliefs on what should or should not be done.

a term used to help weigh the benefits and costs of every decision we make. (what you give up when you make an economic decision)

Principle #?:
Economics is concerned with making choices with limited resources.

Principle #?:
When making decisions, one must take into account tradeoffs and opportunity costs.

Principle #?:
Specialization leads to gains for all involved.

Principle #?:
People respond to incentives, both good and bad.

Principle #?:
Rational behavior requires thinking on the margin.

Principle #?:
Markets Are Generally Efficient; When They Aren't, Government Can Sometimes Correct the Failure.

Principle #?:
Economic Growth, Low Unemployment, and Low Inflation Are Economic Goals That Do Not Always Coincide.

Principle #?:
Institutions and human creativity help explain the wealth of nations.

the process of converting resources into goods and services.

land, labor, capital, and entrepreneurial ability.

includes natural resources such as mineral deposits, oil, natural gas, water and land in the usual sense of the word. Payment for use of this as a resource is rent.

Includes the mental and physical talents of individuals who produce products and services. The payment for this is wages.

Includes manufactured products such as tractors, welding equipment, and computers that are used to produce other goods and services. The payment to owners of this is interest.

combine land, labor, and capital to produce goods and services. They absorb the risk of being in business, including the risk of bankruptcy and other liabilities associated with doing business. They earn profit for their effort.

Goods and services are produced at their lowest resource (opportunity) cost.

The mix of goods and services produced is just what society desires.

Shows the combinations of two goods that are possible for a society to produce at full employment. Points on or inside the line are attainable, and those outside of the frontier are unattainable.

Goods and services that are purchased from abroad.

Goods and services that are sold abroad.

When a country can produce more of a good than another country using the same amount of resources.

When a country has a lower opportunity cost of producing a good than another country.

When a country that does not engage in international trade, also known as a closed economy.