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34 terms
Terms | Definitions |
|---|---|
 opportunity cost | the value of the next best (not chosen) alternative |
| gain from trade | reallocation of goods between two parties in with a mutually beneficial outcome. |
| specialization | people concentrating their production efforts on what they are good at. |
| division of labor | some workers specialize in one task, while others specialize in another. Overall production is divided into parts |
| comparative advantage | a person or group has --------- in producing one good relative to another food if that person or group can produce that good with comparatively less time, effort, or resources then the other person or group. |
| international trade | trade between people in two different countries |
| production possibilities | alternative combinations of production of various goods, given the economy's resources |
| increasing opportunity cost | a situation in which producing more of one good requires giving up an increasing amount of production of another |
| production possibilities cruve | a curve showing the maximum combinations of production of two goods that are possivle, given the economy's resources |
| market economy | an economy characterized by freely determined prices and the free exchange of goods and services in markets |
| command economy | an economy in which the government determines prices and production; also called centrally planned economy |
| freely determined prices | prices determined by the individuals and firms interacting in markets |
| property rights | rights over the use, sale, and proceeds from a good or resource |
| incentive | a device that motivates people to take action, usually so as to increase economic efficiency |
| market failure | any situation in which the market does not lead to an efficient economic outcome and in which there is a potential role for government |
| government failure | the situation where the government fails to improve on the market of even makes things worse |
| recession | a decline in production or employment that lasts for six months or more |
| relative price | the price of a particular good compared to the price of other things |
| economic variable | any economic measure that can vary over a range of values |
| controlled experiments | empirical tests of theories in a controlled setting in which particular effects can be isolated |
| experimental economics | a branch of economics that uses laboratory experiments to analyze economic behavior |
| economic model | an explanation of how the economy of part of the economy works |
| microeconomics | the branch of economics that examines individual decision making at firms and households and the way they interact in specific industries and markets |
| macroeconomics | the branch of economics that examines the workings and problems of the economy as a whole - GDP growth and unemployment |
| gross domestic product GDP | a measure of the value of all the foods and services newly produced in an economy during a specified period of time. |
| positively related / directly related | a situation in which an increase in one variable is associated with an increase in another variable |
| negatively related / inversely related | a situation in which an increase in one variable is associated with a decrease in another variable. |
| ceteris paribus | "all other things being equal"; refers to holding all other variables constant or keeping all other things the same when one variable is changed |
| capitalism | an economic system based on a market economy in which capital is individually owned, and production and employment decisions are decentralized |
| socialism | an economic system in which the government owns and controls all the capital and makes decisions about prices and quantities as part of a central plan |
| mixed economy | a market economy in which the government plays a very large roll |
| positive economics | economic analysis that explains what happens in the economy and why without making recommendations about economic policy. |
| normative economics | economic analysis that makes recommendations about economic policy |
| Council of Economic Advisors | a three-member group of economists appointed by the president of the USA to analyze the economy and make recommendations about economic policy |
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