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Economics
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The study of how people use their scarce resources to satisfy their unlimited wants
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Resources
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The inputs, or factors of production, used to produce the goods and services that people want
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Labor
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Physical and mental effort used to produce goods and services; a resource
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Capital
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The buildings, equipment, and human skills used to produce goods and services; a resource
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Natural resources
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All gifts of nature used to produce goods and services; a resource
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Entrepreneurial ability
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Managerial and organizational skills needed to start a firm, combined with the willingness to take the risk of profit of loss; a resource
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Entrepreneur
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A profit-seeking decision maker who starts an idea, organizes an enterprise to bring that idea to life, and assumes the risk of the operation
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Wages
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Payment to resource owners for their labour
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Interest
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Payment to resource owners for the use of their capital
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Rent
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Payment to resource owners for the use of their natural resources
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Profit
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Reward for entrepreneurial ability; sales revenue minus resource cost
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Good
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A tangible product used to satisfy human wants
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Service
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An activity, or intangible product, used to satisfy human wants
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Scarcity
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Occurs when the amount people desire exceeds the amount available at a zero price
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Market
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A set of arrangements by which buyers and sellers carry out exchange at mutually agreeable terms
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Product market
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A market in which a good or service is bought and sold
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Resource market
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A market in which a resource is bought and sold
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Circular-flow model
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A diagram that traces the flow or resources, products, income, and revenue among economic decision makers
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Rational self-interest
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Individuals try 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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Marginal
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Incremental, additional, or extra; used to describe a change in an economic variable
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Economic theory (Economic model)
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A simplification of reality mused to make predictions about cause and effect in the real world
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Variable
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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
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Behavioral assumption
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An assumption that describes the expected behavior of economic decision makers, what motivates them
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Hypothesis
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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 facts
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Association-is-causation fallacy
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The incorrect idea that if two variables are associated in time, one must necessarily cause the other
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Fallacy of composition
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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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Secondary effects
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Unintended consequences of economic actions that may develop slowly over time as people react to events
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