the value of the next best (not chosen) alternative
gain from trade
reallocation of goods between two parties in with a mutually beneficial outcome.
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
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.
trade between people in two different countries
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
an economy characterized by freely determined prices and the free exchange of goods and services in markets
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
rights over the use, sale, and proceeds from a good or resource
a device that motivates people to take action, usually so as to increase economic efficiency
any situation in which the market does not lead to an efficient economic outcome and in which there is a potential role for government
the situation where the government fails to improve on the market of even makes things worse
a decline in production or employment that lasts for six months or more
the price of a particular good compared to the price of other things
any economic measure that can vary over a range of values
empirical tests of theories in a controlled setting in which particular effects can be isolated
a branch of economics that uses laboratory experiments to analyze economic behavior
an explanation of how the economy of part of the economy works
the branch of economics that examines individual decision making at firms and households and the way they interact in specific industries and markets
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.
"all other things being equal"; refers to holding all other variables constant or keeping all other things the same when one variable is changed
an economic system based on a market economy in which capital is individually owned, and production and employment decisions are decentralized
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
a market economy in which the government plays a very large roll
economic analysis that explains what happens in the economy and why without making recommendations about economic policy.
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