Trade offs. Sacrificing some of one thing to get more of another.
Natural resources, labor, entrepreneurs, land, and food.
An economic way of thinking.
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.
A statement about economic behavior or the economy that enables prediction of the probable effects of certain actions.
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.
Focuses on facts and cause and effect relationships. Deals with what the economy is actually like.
Incorporates value judgements about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal.
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.
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.
Motivating force of the various economic units as they express their free choices.
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.
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.
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.
The market system promotes the use of resources by guiding them into the production of the goods and services most wanted by society.
The market system encourages skill acquisition, hard work, and innovation. Greater work and production means higher incomes.
The market system thrives on an enterprise of choice.
The place where resources or the services of resource suppliers are bought and sold.
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.
The production of any particular good in the least costly way.
The particular mix of good and services most highly valued by society. (Minimum cost production assumed)