decision making by individuals, businesses, industries, and governments
broader issues in the economy such as inflation, unemployment, and national output of goods and services
assumption used in economics (and other disciplines as well), where other relevant factors or variables are held constant
how well resources are used and allocated. do people get the goods and services they want at the lowest possible resource cost? this is the chief focus of efficiency
the fairness of various issues and policies
our unlimited wants clash with limited resources, leading to scarcity. everyone faces scarcity (rich and poor) because, at a minimum, our time is limited on earth. economics focuses on the allocation of scarce resources to satisfy unlimited wants.
the next best alternative; what you give up to do something or purchase something. for example, to watch a movie at a theater, there is not just the monetary cost of the tickets and refreshments, but the time involved in watching the movie. you could have been doing something else (knitting, golfing, hiking, or studying economics).
the process of converting resources (factors of production)--land, labor, capital, and entrepreneurial ability--into goods and services
productive resources include land (land and natural resources), labor (mental and physical talents of people), capital (manufactured products used to produce other products), and entrepreneurial ability (the combining of the other factors to produce products and assume the risk of business).
includes natural resources such as mineral deposits, oil, natural gas, water, and land in the usual sense of the word. the payment to land as a resource is called rent.
includes the mental and physical talents of individuals who produce products and services. the payment to labor is called wages.
includes manufactured products such as welding machines, computers, and cellular phones that are used to produce other goods and services. the payment to capital is referred to as interest.
entrepreneurs 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. entrepreneurs recieve profits for this effort.
goods and services are produced at their lowest resource (opportunity) cost.
the mix of goods and services produced is just what the society desires
production possibility frontier
shows the combinations of two goods that are possible for a society to produce at full employment. points on or inside the PPF are feasible, and those outside of the frontier are unattainable.
the cost paid for one product in terms of the output (or consumption) of another product that must be forgone.
one country can produce more of a good than another country
one country has a lower opportunity cost of producing a good than another country
institutions that bring buyers and sellers together so they can interact and transact with each other.
name given to the market economy because prices provide considerable information to both buyers and sellers
the maximum amount of a product that buyers are willing and able to purchase over some time period at various prices, holding all other relevant factors constant
law of demand
holding all other relevant factors constant, as price increases, quantity demanded falls, and as price decreases, quantity demanded rises
market demand and supply curves are found by adding together how many units of the product will be purchased or supplied at each price
determinants of demand
nonprice factors that affect demand, including tastes and preferences, income, prices of related goods, number of buyers, and expectations
good for which an increase in income results in rising demand
good for which an increase in income results in declining demand
goods consumers will substitute for one another depending on their relative prices. when the price of one good rises and the demand for another good increases, they are substitute goods, and vice versa
goods that are typically consumed together. when the price of a complementary good rises, the demand for the other good declines, and vice versa.
change in demand
occurs when one or more of the determinants of demand changes, shown as a shift in the entire demand curve
change in quantity demanded
occurs when the price of a product changes, shown as a movement along an existing demand curve
the maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant
law of supply
holding all other relevant factors constant, as price increases, quantity supplied will rise, and as price declines, quantity supplied will fall.
determinants of supply
nonprice factors that affect supply, including production technology, costs of resources, prices of other commodities, expectations, number of sellers, and taxes and subsidies
change in supply
occurs when one or more of the determinants of supply change, shown as a shift in the entire supply curve
change in quantity supplied
occurs when the price of a product changes, shown as a movement along an existing supply curve
market forces are in balance when the quantities demanded by consumers just equal the quantities supplied by producers
market equilibrium price is the price that results when quantity demanded is just equal to quantity supplied
market equilibrium quantity is the output that reulsts when quantity demanded is just equal to quantity supplied
occurs when the price is above market equilibrium, and quantity supplied exceeds quantity demanded
occurs when the price is below market equilibrium, and quantity demanded exceeds quantity supplied
government-set maximum price that can be charged for a product or service. when the price ceiling is set below equilibrium, it leads to shortages
government-set minimum price that can be charged for a product or service. when the price floor is set above equilibrium, it leads to surpluses