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21 terms

Chapter 1-The Central Idea

Key vocabulary terms from Chapter 1 for Dr. Stern's Principles of Macroeconomics at Auburn University.
STUDY
PLAY
Economics
The study of how people deal with scarcity.
Scarcity
The situation in which the quantity of resources is insufficient to meet all wants.
Choice
A selection among alternative goods, services, or actions.
Economic Interactions
Exchanges of goods and services between people.
Market
An arrangement by which economic exchanges between people take place.
Opportunity Cost
The value of the next-best forgone alternative that was not chosen because something else was chosen.
Gains From Trade
Improvements in income, production, or satisfaction owing to the exchange of goods or services.
Specialization
A concentration of production effort on a single specific task.
Division of Labor
The division of production into various parts in which different groups of workers specialize.
Comparative Advantage
A situation in which a person or group can produce one good at a lower opportunity cost than another person or group.
International Trade
The exchange of goods and services between people or firms in different nations.
Production Possibilities
Alternative combinations of production of various goods that are possible, 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 good.
Production Possibilities Curve
A curve showing the maximum combinations of production of two goods that are possible, 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 a centrally planned economy.
Freely Determined Prices
Prices that are 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 or even makes things worse.