Econ Test 1
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Created by:
Butterybunz on September 21, 2011
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Econ 201 Test 1
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33 terms
Terms | Definitions |
|---|---|
 Opportunity Cost | Trade offs. Sacrificing some of one thing to get more of another. |
| Scarce Resources | Natural resources, labor, entrepreneurs, land, and food. |
| Economic Perspective | An economic way of thinking. |
| Marginal Analysis | The decision to obtain the marginal benefit associated with some specific option always includes the marginal cost of forgoing something else. |
| Step 1 SM | Observing real-world behavior and outcomes. |
| Step 2 SM | Based on observations, formulating a possible explanation of cause and effect (Hypothesis). |
| Step 3 SM | Testing this explanation by comparing the outcomes of specific events to the outcome predicted by the hypothesis. |
| Step 4 SM | Accepting, rejecting, and modifying the hypothesis, based on these comparisons. |
| Step 5 SM | Continuing to test the hypothesis against the facts. As favorable results accumulate, the hypothesis evolves into a theory. |
| Economic Principle | A statement about economic behavior or the economy that enables prediction of the probable effects of certain actions. |
| Generalizations | Economic principles are generalizations relating to economic behavior or to the economy itself. The tendencies of typical or average consumers, workings, or business firms. |
| Other Things Equal Assumption | The assumption that factors other than those being considered do not change. |
| Positive Economics | Focuses on facts and cause and effect relationships. Deals with what the economy is actually like. |
| Normative Economics | Incorporates value judgements about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal. |
| Budget Line | It is a schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income. |
| Law of Increasing Opportunity Costs | As the production of a particular good increases, the opportunity cost of producing additional unit rises. |
| The Command System | Also known as socialism or communism. Government owns most property resources and economic decision making. |
| The Market System | Also known as capitalism. The private ownership of resources and the use of markets and prices to coordinate and direct economic activity. |
| Private Property | Coupled with the freedom to negotiate binding legal contracts, enables individuals and businesses to obtain, use, and dispose of property resources as they see fit. |
| Freedom of Enterprise | Ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets. |
| Freedom of Choice | Enables owners to employ or dispose of their property and money as they see fit. |
| Self-Interest | Motivating force of the various economic units as they express their free choices. |
| Specialization | The use of resources of an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services. |
| Creative Destruction | The creation of new products and production methods completely destroys the market positions of firms that we wedded to existing products and older ways of doing business. |
| Invisible Hand | Firms and resource suppliers, seeking to further their own self-interest and operating within the framework of a highly competitive market system with promote the public or social interest as well. |
| Efficiency | The market system promotes the use of resources by guiding them into the production of the goods and services most wanted by society. |
| Incentives | The market system encourages skill acquisition, hard work, and innovation. Greater work and production means higher incomes. |
| Freedom | The market system thrives on an enterprise of choice. |
| Resource Market | The place where resources or the services of resource suppliers are bought and sold. |
| Product Market | The place where goods and services produced by businesses are bought and sold. |
| Rationing Function of Prices | The ability of the competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent. |
| Production Efficiency | The production of any particular good in the least costly way. |
| Allocation Efficiency | The particular mix of good and services most highly valued by society. (Minimum cost production assumed) |
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