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Economic good
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Anything that gives a person enjoyment
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Utility
answer
the satisfaction a consumer receives a good
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bad
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anything from which individuals receive disutility or dissatisfaction
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Disutility
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the dissatisfaction one receives from a bad
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land
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all natural resources used to produce goods and services
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labor
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the work brought about by the physical and mental talents that people contribute to the production process
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Capital
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produced goods, such as factories machinery, tools, computers, and buildings, that can be used as inputs for further production
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Entrepreneurship
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The talent that some people have for organizing the resources of land, labor, and capital to produce goods, seek new business opportunities, and develop new ways of doing things.
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Scarcity
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the condition in which our wants are greater than the limited resources available to satisfy those wants
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Economics
answer
the science of scarcity; the science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants
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rationing device
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a means for deciding who gets what of available resources and goods
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opportunity cost
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The value of the next best alternative when a choice is made
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marginal benefits
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Additional benefits; the benefits connected with consuming an additional unit of a good or undertaking one more unit of an activity.
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marginal cost
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additional cost; the cost connected with consuming an additional unit of a good or undertaking one more unit of an activity
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Decisions at the Margin
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Decision making characterized by weighing the additional (marginal) benefits of a change against the additional (marginal) costs of a change with respect to current conditions.
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Effiency
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exists when marginal benefits equal marginal costs
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incentive
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something that encourages or motivates a person to take action
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exchange
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the act of giving up one thing in return for something else
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Ceteris Paribus
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a Latin phrase that means "all other things held constant"
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Theory
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an abstract representation of the real world designed with the intent to better understand it
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Abstraction
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the process of focusing on a limited number of variables to explain or predict an event
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positive economics
answer
the study of "what is" in economics
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normative economics
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the study of "what should be" in economics
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Microeconomics
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the branch of economics that deals with human behavior and choices as they relate to relatively small units; an individual, a firm, an industry
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marcroeconomics
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the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
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Economics
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the study of how society manages its scarce resources
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scarcity necessitates
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choices
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rationing device
answer
a means for deciding who gets what portion of the available resources and goods
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at the margin
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where are allocation decisions made?
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voluntary exchange
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win-win, both parties are better off as a result of the exchange.
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What, how, who
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3 major questions economists must answer
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Efficiency
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produces what people want at the lowest possible cost
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stability
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quality of steady growth, full employment, and stable price levels
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ex ante
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before the trade
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ex post
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after the trade
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command economy
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a central authority makes the key economic decisions
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free market
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the market working without government assistance or hinderance
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consumer sovereignty
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what is sold is determined first by what the consumers want.
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mixed economy
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market-based economic system with limited government involvement
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