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scarcity
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the limited nature of society's resources (tontz def: when the amount wanted is greater than the amount available...implies competition)
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economics
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the study of how society manages its scarce resources
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principle 1 of economics
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People face trade-offs
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trade-off example: guns and butter
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Refers to trade offs that nations face when choosing whether to produce more or less military or consumer goods
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efficiency
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the property of society getting the maximum benefits from its scarce resources
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equality
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the property of distributing economic prosperity uniformly among society's members
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trade-off example: efficiency and equality
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efficiency refers to the size of the economic pie, and equality refers to how the pie is divided into individual slices
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principle 2 of economics
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the cost of something is what you give up to get it
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opportunity cost
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Whatever must be given up to obtain some item
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principle 3 of economics
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rational people think at the margin
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rational people
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people who systematically and purposefully do the best they can to achieve their objectives
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marginal change
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a small incremental adjustment to a plan of action
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marginal cost
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the additional cost of producing one additional unit of output
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marginal benefit
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the additional benefit to a consumer from consuming one more unit of a good or service.
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principle 4 of economics
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people respond to incentives
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incentive
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something that induces a person to act, a punishment or reward
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principle 5 of economics
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trade can make everyone better off
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principle 6 of economics
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markets are usually a good way to organize econominc activity
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market economy
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an economy that allocates resources through the decetralized decisions of many firms and households as they interact in markets for goods and services
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principle 7 of economics
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governments can sometimes improve market outcomes
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property rights
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the ability of an individual to own and exercise control over scarce resources
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market failure
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a situation in which a market left on its own fails to allocate resources efficiently
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externality
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the impact of one person's actions on the well-being of a bystander
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market power
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the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
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principle 8 of economics
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a country's standard of living depends on its ability to produce goods and services
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productivity
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the quantity of goods and services produced from each unit of labor input
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principle 9 of economics
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prices rise when the government prints too much money
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inflation
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An increase in the overall level of prices in the economy
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principle 10 of economics
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society faces a short-run trade-off between inflation and unemployment
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business cycle
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fluctuations in economic activity, such as employment and production
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economics (Tontz def)
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a science that analyzes how individuals behave ina world od scarcity
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abstraction (Tontz def)
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the process of building theory is to simplify our thinking, giving us an understanding of the most likely outcome with the least amount of detailed information
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marginal analysis (Tontz def)
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the study of small changes associated with one additional unit
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marginal value (Tontz def)
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the additional value of consuming one more unit
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marginal revenue (Tontz def)
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the addition to revenue from selling one more unit
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marginal cost (Tontz def)
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the additional cost of producing one more unit
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assumptions (Tontz def)
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key observations of reality that appear to be the most helpful in predicting behavior (ex. who play basketball well? assumption: focus on tall people) .".if...
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implications
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follow directly and logically from the assumption ...then...
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hypothesis
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togehter assumption/implication (or if/then) form the theory of hypothesis
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test theory
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observing reality
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adopt theory
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based on how well the theory predicts
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good
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anything (material and non-material) which an individual wants to have more of at zero price
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resource
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anything that can be used to produce goods (land, labor, capital)
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land
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includes its attributes like mineral content, location, view, weather
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labor
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the skills of people in producing both material and non-material goods
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capital
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buildings and equipment used in production
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accounting costs
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the sum of explicit expenditures, present and past
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sunk costs
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past expenditures that cannot be recovered
(you cannot unring the bell)
(you cannot unring the bell)
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production possibility frontier
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a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.
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microeconomics
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the study of how households and firms make decisions and how they interact in the markets.
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macroeconomics
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the study of economywide phenomena, including inflation, unemployment, and economic growth
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positive statements
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claims that attemot to describe the world as it is
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nomative statements
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claims that attempt to prescribe how the world should be
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absolute advantage
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the ability to produce a good using fewer inouts than another producer
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opportunity cost
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whatever must be given up to obtain some item
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