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scarcity
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a situation in which unlimited wants exceed the limited resources available to fulfill those wants
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economics
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the study of the choices people make to attain their goals, given their scarce resources
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economic model
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a simplified version of reality used to analyze real-world economic situations
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market
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a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
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key economic ideas
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people are rational, people respond to economic incentives, and optimal decisions are made at the margin
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marginal analysis
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analysis that involves comparing marginal benefits and marginal costs
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marginal
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what economists refer to as "extra" or "additional"
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trade off
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the idea that, because of scarcity, producing more of one good or service means producing less of another good or service
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opportunity cost
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the highest-valued alternative that must be given up to engage in an activity
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centrally planned economy
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an economy in which the government decides how economic resources will be allocated
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market economy
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an economy in which the decisions of households and firms interacting in markets allocate the economy
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mixed economy
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an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation or resources
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productive efficiency
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a situation in which a good or service is produced at the lowest possible cost
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allocative efficency
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a state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
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voluntary exchange
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a situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction
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equity
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the fair distribution of economic benefits
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economic variable
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something measurable that can have different values, such as the incomes of doctors
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positive analysis
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analysis concerned with "what is"
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normative analysis
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analysis concerned with "what ought to be"
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microeconomics
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the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
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macroeconomics
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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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production possibilities frontier
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a curve showing the maximum attainable combinations of two goods that can be produced with available resources and current technology
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economic growth
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the ability of the economy to increase the production of goods and services
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trade
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the act of buying and selling
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absolute advantage
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the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
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comparative advantage
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the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
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product market
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a market for goods-- such as computers-- or services-- such as medical treatment
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factor market
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a market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability
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factors of production
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labor, capital, natural resources, and other inputs used to make goods and services
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labor
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factor of production that includes all types of work
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capital
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factor of production that includes physical _______, such as computers and machine tools, that produce other goods
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natural resources
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factor of production that includes land, water, oil, iron ore, and other raw materials that are used in producing goods
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entrepreneurial ability
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the ability to bring together the other factors of production to successfully produce and sell goods and services
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circular flow diagram
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a model that illustrates how participants in markets are linked
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free market
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a market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed
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property rights
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the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it
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tariff
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a tax imposed by a government on imports
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imports
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goods and services bought domestically, but produced in other countries
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exports
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goods and services produced domestically, but sold in other countries
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autarky
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a situation in which a country does not trade with other countries
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terms of trade
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the ratio at which a country can trade its exports for imports from other countries
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main sources of comparative advantage
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climate and natural resources, relative abundance of labor and capital, technology, external economies
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external economies
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reductions in a firm's costs that result from an increase in the size of an industry
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free trade
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trade between countries that is without government restrictions
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quota
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a numerical limit a government imposes on the quantity of a good that can be imported into the country. imposed by the importing country
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voluntary export restraint
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an agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country
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purpose of most tariffs and quotas
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to reduce the foreign competition that domestic firms face
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world trade organization
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an international organization that oversees international trade agreements
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globalization
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the process of countries becoming more open to foreign trade and investments
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additional barriers to trade
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strict health and safety regulations on imported goods, restrictions on imports on the grounds of national security; these are often used mostly to shield domestic firms from foreign competition
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protectionism
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the use of trade barriers to shield domestic firms from foreign competition
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dumping
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selling a product for a price below its cost of production
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what goods will be produced, how will they be produced, and who will receive them
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the three economic questions every society must answer are:
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maximizes benefits to society
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EFFICIENCY means that goods are distributed in a way that __________
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fair
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EQUITY means that goods are distributed in a way that is _______
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profit
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if a firm is productively and allocatively efficient, it earns ________
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suffers a loss
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if a firm is NOT productively and allocatively efficient, it ________
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yes
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is it necessary for all economic systems to limit services, such as health care?
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the firm
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in a market system, what determines how goods and services will be produced?
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test models
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economic data is used to ______
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to develop an economic model
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what is the purpose of these steps:
1. decide on the assumptions to use in development
2. formulate a testable hypothesis
3. use economic data to test the hypothesis
4. revise if it fails to explain the economic data well
5. retain the revised version to help answer similar economic questions in the future
1. decide on the assumptions to use in development
2. formulate a testable hypothesis
3. use economic data to test the hypothesis
4. revise if it fails to explain the economic data well
5. retain the revised version to help answer similar economic questions in the future
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simplified to be useful
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models are based on assumptions because they have to be _________________________________
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micro
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the effect of cigarette taxes on the number or packs sold is a ________economic issue
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macro
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the effect of higher income taxes on the total amount of consumer spending is a _______economic issue
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psychic reward
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a non-monetary form of remuneration that lifts one's spirits
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increased
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the outcome of enforcing contracts and property rights in a market system are ________________ economic activity
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