Chapter 1 Flashcards
(31 cards)
Allocative efficiency
A state of the economy in which production is in accordance with consumer preferences; marginal benefit equal to marginal cost
Centrally planned economy
An economy in which the government decides how economic resources will be allocated
Economic model
A simplified version of reality used to analyze real-world economic situations
Economic variable
Something measurable that can have different values, such as the number of people employed in manufacturing
Economics
The study of the choices people make to attain their goals, given their scarce resources
Equity
The fair distribution of economic benefits
Macroeconomics
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
Marginal analysis
Analysis that involves comparing marginal benefits and marginal costs
Market
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
Market economy
An economy in which the decisions of households and firms as they interact in markets determine the allocation of economic resources
Microeconomics
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
Mixed economy
An economy in which most economic decisions results from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources
Normative analysis
Analysis concerned with what ought to be
Opportunity cost
The highest-valued alternative that must be given up to engage in an activity
Positive analysis
Analysis concerned with what is
Productive efficiency
A state of the economy in which every good or service is produced at the lowest possible cost
Scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants
Trade-off
The idea that, because of scarcity, producing more of one good or service means producing less of another good or service
Voluntary exchange
A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction
Rational Behavior
Consumers and firms are presumed to act rationally, using all available information to achieve their goals. While not universally applicable, this assumption helps explain most economic decisions
Economic Incentives
Individuals and firms are influenced by economic incentives, which significantly shape their behaviors and decision-making processes
Equilibrium at Margins
The optimal decision occurs where the marginal benefit of an action equals its marginal cost, guiding economic entities to maximize efficiency in their activities
What will be produced?
Determined by consumer, business, and government choices, with each decision bearing an opportunity cost
How will it be produced?
Firms decide on production methods, often weighing trade-offs between labor and machinery
