| Term | Definition |
|---|
| Incentives | Rewards for engaging in a particular activity. |
| Economics | The study of how people allocate their limited resources to satisfy their unlimited wants. |
| Resources | Things used to produce other things to satisify people's wants. |
| Wants | What people would buy if their incomes were unlimited. |
| Microeconomics | The study of decision making undertaken by individuals and by firms. |
| Macroeconomics | The study of the behavior of the economy as a whole, including such economy wide phenomena as changes in unemployment, the general price level, and national income. |
| Aggregates | Total amounts or quantities. |
| Rationality assumption | The assumption that people do not intentionally make decisions that would leave them worse off. |
| Models or Theories | Simplified representations of the real world used as the basis for predictions or explanations. |
| Ceteris paribus assumption | The assumption that nothing changes except the factor or factors being studied. |
| Empirical | Relying on real-world data in evaluating the usefulness of a model. |
| Positive economics | Analysis that is strictly limited to making either purely descriptive statements or scientific predictions. (A statement of what is) |
| Normative economics | Analysis involving value judgments about economic policies (relates to whether things are good or bad. A statement of what ought to be. ) |
| Scarcity | A situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants. |
| Production | Any activity that results in the conversion of resources into products that can be used in consumption. |
| Land | The natural resources that are available from nature. Land as a resource includes location, original fertility and mineral deposits, topography, climate, water, and vegetation. |
| Labor | Productive contributions of humans who work, involving both mental and physical activities. |
| Physical capital | All manufactured resources, including buildings, equipment, machines, and improvements to land that is used for production. |
| Human capital | The accumulated training and education of workers. |
| Entrepreneurship | The factor of production involving human resources that perform the functions of raising capital, organizing, managing, assembling other factors of production, and making basic business policy decisions. The entrepreneur is a risk taker. |
| Goods | All things from which individuals derive satisfaction or happiness. |
| Economic Goods | Goods that are scarce, for which the quantity demanded exceeds the quantity supplied at a zero price. |
| Services | Mental or physical labor or help purchased by consumers. |
| Opportunity cost | The highest-valued, next-best alternative that must be sacrificed to obtain something or to satisfy a want. |
| Production possibilities curve (PPC) | A curve representing all possible combinations of total output that could be produced. (Assumes, 1-A fixed amount of reproductive resources of a given quantity and 2-the efficient use of those resources.) |
| Technology | Society's pool of applied knowledge concerning how goods and services can be produced. |
| Efficiency | The case in which a given level of inputs is used to produce the maximum output possible. (Alternatively, the situation in which a given output is produced at minimum cost) |
| Inefficient point | Any point below the production possibilities curve at which the use of resources is not generating the maximum possible output. |
| Law of increasing relative cost | The observation that the opportunity cost of additional units of a good generally increases as society attempts to produce more of that good. (This accounts to the bowed-out shape of the production possibilities curve) |
| Consumption | The use of goods and services for personal satisfaction. |
| Specialization | The division of productive activities among persons and regions so that no one individual or one area is totally self-sufficient. |
| Absolute advantage | The ability to produce more units of a good or service using a given quantity of labor or resource inputs. |
| Comparative advantage | The ability to produce a good or service at a lower opportunity cost compared to other producers. |
| Division of labor | The segregation of a resource into different specific tasks. (assembly line) |
| Market | All of the arrangements that individuals have for exchanging with one other. (For example -- The labor market, The automobile market, The credit market, etc.) |
| Demand | A schedule of how much of a good or service people will purchase at any price during a specific time period, ceteris paribus. |
| Law of demand | The observation that there is negative, or inverse, relationship between the price of any good or service and the quantity demanded, ceteris paribus. |
| Relative price | The price of one commodity divided by the price of another commodity (the number of units of one commodity that must be sacrificed to purchase one unit of another commodity.) |
| Money price | The price that we observe today, expressed in today's dollars (also called the absolute or nominal price) |
| Demand curve | A graphical representation of the demand schedule. |
| Market demand | The demand of all consumers in the marketplace for a particular good or service. The summation at each price of the quantity demanded by each individual. |
| Ceteris paribus conditions | Determinants of the relationship between price and quantity that are unchanged along a curve. (changes in these factors cause the curve to shift) |
| Normal goods | Goods for which demand rises as income rises. Most goods are normal goods. |
| Inferior goods | Goods for which demand falls as income rises. |
| Substitutes | Two goods are substitutes when either one can be used for consumption to satisfy a similar want. |
| Complements | Two goods are complements if both are used together for consumption or enjoyment. |
| Supply | A schedule showing the relationship between price and quantity supplied for a specified period of time, other things ceteris peribus. |
| Law of supply | The observation that the higher the price of a good, the more of that good sellers will make available over a specified time period, other things ceteris peribus. |
| Supply curve | The graphic representation of the supply schedule. |
| Subsidy | A negative tax (a payment to a producer from the government, usually in the form of a cash grant per unit.) |
| Equilibrium price (or Market clearing price) | The price that clears the market, at which quantity demanded equals quantity supplied. (the price where quantity intersects demand) |
| Equilibrium | The situtation when quantity supplied equals quantity demanded at a particular price. |
| Shortage | A situation in which quantity demanded is greater than quantity supplied at a price below the market clearing price. |
Combine with other sets
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