Economics

resource
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Terms in this set (48)
resource
Any item, whether a gift of nature, the result of production, or the result of human effort, that is used to produce goods and services.
land
All natural resources used in production; sometimes referred to as "gifts of nature."
labor
all physical and mental activity devoted to producing goods and services
capital
The tools, machinery, infrastructure, and knowledge used to produce goods and services. Capital is sometimes divided into "physical" and "human" capital. Physical capital refers to tangible items that are created to increase productivity; human capital refers to the knowledge and skills that people acquire in order to increase productivity.
entrepreneurial ability
The talent or ability to combine land, labor, and capital to produce goods and services. Entrepreneurial ability is different from human capital in that it primarily involves assuming risk and organizing resources into a productive process.
scarcity
A condition that results from the inability of limited resources to satisfy unlimited wants.Because your time is subject to scarcity, you have to decide whether you're better off studying for your economics exam or going to a movie with friends. Similarly, due to the scarcity of natural resources, we can't have all the housing and all the forests we may want because cutting down a tree to build a house means less forest.
relative scarcity
The comparison of the scarcity of one good, service, or resource to that of another.A major problem faced by developing countries is the relative scarcity of drinkable water as compared to water in general.
allocation
The process of assigning a good, service, or resource to one use instead of another.At a local town council, people debated a proposal that would change the allocation of public space for recreational use by demolishing a skating park and building an arboretum
opportunity cost
The value of the next-best forgone alternative; the value of the opportunity that you gave up when you chose one activity, or opportunity, instead of another. Opportunity costs exist because of scarcity.You just received $100 for your birthday. Your most preferred way of spending the money is either to buy a new jacket or to buy a ticket to a concert. If you purchase the jacket, the opportunity cost of the jacket is the entertainment value of the concert that you didn't attend. Even though you were given the $100, the jacket isn't free because you had to give up the concert in order to acquire it.
self-interest
the idea that people choose to to the things that interest them
marginal benefit (MB)the additional benefit associated with one more unite of an activitymarginal cost (MC)the additional cost associated with one more unit of an activitymarginal decision makingThe process of making choices in increments by evaluating the additional, or marginal, benefit against the additional, or marginal, cost of an action.When you decide to turn off the bedroom light on your way to the kitchen so that you can save a little money on your electric bill, you're engaging in marginal decision making. Similarly, when you decide after studying for 3 hours that another hour of sleep is more beneficial to you than a fourth hour studying, that's marginal decision making.optimizationThe idea that people make choices in order to maximize the overall benefit, or utility, of an action subject to its cost; people will engage in an activity as long as the marginal benefit of an activity is greater than or equal to its marginal cost. If do it.If don't do it.Definitions in Context: Marginal Benefit and Marginal CostIf you've ever supersized your meal at a fast-food restaurant, you determined that themarginal benefit of the additional fries and soft drink was greater than the marginal cost of upgrading your purchase.decreasing marginal benefitThe negative relationship between the marginal benefit associated with the use of a good or service and the quantity consumed; the more of a good or service that is consumed, in a given period of time, the lower the marginal benefit associated with each additional unit.Suppose it's late at night and you're studying for an exam you have early the next morning. You'll experience decreasing marginal benefit with each additional hour you spend studying because each hour of sleep lost to studying is more important than the previous hour.increasing marginal costA condition in which the additional cost associated with each successive unit of an activity increases.Suppose it's late at night and you're studying for an exam you have early the next morning. You'll experienceincreasing marginal cost for each additional hour you spend studying because each hour of sleep lost to studying is more important than the previous houroptimal level of outputThe level of output at which the marginal benefit of the last unit produced and consumed is equal to the marginal cost of that unit.production possibilites scheduleA table that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology.production possibilities frontier PPFA graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology. The PPF shows the production combinations that are both attainable and efficient.constant opportunity costsA characteristic of production whereby the opportunity cost associated with increasing the production of one good or service, in terms of another, is constant at every level of production.efficient allocation of resourcesAllocation of resources in such a way that it is possible to increase the production of one good only by decreasing the production of another.inefficient allocation of resourcesAllocation of resources in such a way that it is possible to increase the production of one good without decreasing the production of another.comparative advantageThe ability to produce a good or service at a lower relative opportunity cost than that of another producer.If in the time it takes you to iron one shirt, you could wash 10 dishes, but in the time it takes your roommate to iron one shirt, she could wash 20 dishes, you have the comparative advantage in ironing shirts: You give up only 10 dishes, while she gives up 20.specializationThe practice of using available resources to produce a single good or service rather than producing multiple goods or services. You and your roommate agree to a specialization of chores—you will specialize in ironing shirts while your roommate specializes in vacuuming the floor. With this plan, it is likely that you each will spend less time doing household chores.terms of tradeThe price of one good, service, or resource in terms of another.Roommates Alex and Victor decide that Alex will wash five of Victor's shirts in exchange for Victor vacuuming the apartment once. The five pressed shirts for one vacuumed apartment are theterms of trade.gains from tradeThe benefit, or wealth, that accrues to a buyer or seller as a result of trading one good, service, or resource for another. The wealth, or additional well-being, created by trade does not have to be monetary.circular flow modelA model that concisely describes how goods, services, resources, and money flow back and forth in an economy.marketAny place where, or mechanism by which, buyers and sellers interact to trade goods, services, or resources.Whether you buy a laptop from your local electronics store, an online retailer, or someone selling a used laptop through eBay, you and the seller are both participating in the marketfor laptops. Markets can take almost any form. Formal markets, such as the New York Stock Exchange and your local retail store, are highly structured. Informal markets, like swap meets or garage sales, are less structured, with fewer rules.Gooda tangible product that consumers, firms, or governments wish to purchaseservicean intangible product or action that consumers, firms, or governments wish to purchaselaw of demandA principle in economics that states that as the price of a good, service, or resource rises, the quantity demanded will decrease, and vice versa, all else held constant.If you lower the price of a cup of lemonade, the law of demand tells you that people will be more willing and able to buy a cup of lemonade and quantity demanded will increase.demand scheduleA tabular representation of the relationship between the price of a good, service, or resource and the quantities consumers are willing and able to buy over a fixed time period, all else held constant.demand curveA graphical representation of the relationship between the price of a good, service, or resource and the quantities consumers are willing and able to buy over a fixed time period, all else held constant.quantity demandedthe quantity of a good, service, or resource that consumers are willing and able to buy at a given priceincome effectThe effect that a change in the price of a good, service, or resource has on the purchasing power of income. For example, when prices decrease, the purchasing power of income increases and consumers are able to purchase more goods, services, or resources.Suppose you have only $20 to spend on gasoline each week. When the price of gasoline rises from $2 per gallon to $4 per gallon, the purchasing power of that $20 falls from 10 to 5 gallons of gasoline. The resulting decrease in the quantity of gasoline demanded is due to the income effect.substitution effectThe effect that a change in the price of one good, service, or resource has on the demand for another. For example, an increase in the price of one good will increase the demand for its substitutes, and vice versa.Victor usually eats an orange or an apple every day with his lunch. The substitution effect explains why, when he sees the price of oranges increase one week, he substitutes away from oranges and buys more apples instead.diminishing marginal utilityThe negative relationship between the quantity of a good, service, or resource and the marginal utility obtained from each additional unit consumed in a given period of time.For Monica, the first cup of coffee in the morning is worth $3; the second cup is worth only $1. So, if the price of coffee is $2 per cup, she buys one cup of coffee. Her first cup of coffee gives her a lot of satisfaction and is worth the price. She doesn't buy a second cup because of diminishing marginal utility: The second cup is worth only $1 to her, so she can't justify paying $2 to buy it.market demandThe overall, or total, demand for a good, service, or resource. It represents the horizontal summation of the quantities demanded by individuals, firms, states, or even nations at each price over a fixed time period, all else held constant.change (shift) in demandA change in the quantity of a good, service, or resource demanded at every price. Graphically, an increase in demand is represented by a rightward shift of the demand curve, while a decrease in demand is represented by a leftward shift of the demand curve. A particularly rainy fall season is likely to cause an increase in demand for umbrellas, as consumers will be more willing to buy them. A rainy fall season is also likely to result in a decrease in demand for shorts and T-shirts because fewer people will be willing to wear them in wet fall weather.movement along the demand curveA change in the quantity of a good, service, or resource demanded due to a change in its price. Graphically, this change is represented as a movement along an existing demand curve.normal goodA good for which there is a direct relationship between the demand for the good and income. For normal goods, an increase in income increases demand, and a decrease in income decreases demand; a good with a positive income elasticity of demand.When Clara was a college student, her financial resources were limited, and she only owned two pairs of shoes. After she graduated and landed a high-paying job, Clara used her income to buy several new pairs of shoes and an entirely new wardrobe. For Clara, we know that clothing items, such as shoes, are normal goods because when her income increased, her demand for clothing increased and she bought more.inferior goodA good for which there is an inverse relationship between the demand for the good and income. For inferior goods, an increase in income decreases demand, and a decrease in income increases demand; a good with a negative income elasticity of demand.When Clara was a college student, her financial resources were limited, and she had to eat macaroni and cheese almost every night. After she graduated and landed a high-paying job, she stopped eating mac and cheese and, instead, added favorites like lobster bisque to her menu. For Clara, we know that macaroni and cheese must be an inferior good because when her income increased, her demand for mac and cheese decreased.tastes and preferencesthe perception of the desirability associated with consuming a good, service, or resourcebuyersmarket participants who seek to obtain goods, services, and resourcesexpectationsthe anticipation by individuals and firms of costs and benefits that lie in the futuresubstitutesA good for which there is an inverse relationship between the demand for the good and income. For inferior goods, an increase in income decreases demand, and a decrease in income increases demand; a good with a negative income elasticity of demand.When Clara was a college student, her financial resources were limited, and she had to eat macaroni and cheese almost every night. After she graduated and landed a high-paying job, she stopped eating mac and cheese and, instead, added favorites like lobster bisque to her menu. For Clara, we know that macaroni and cheese must be an inferior good because when her income increased, her demand for mac and cheese decreased.complementsGoods, services, or resources that are used or consumed with one another.Because they are often eaten together, tortilla chips and salsa are complements. If you decide to buy a jar of salsa because it's on sale, you'll likely pick up a bag of tortilla chips too.