Chapter 2 Flashcards
(26 cards)
A system for coordinating society’s productive activities.
Economy
The social science that studies the production, distribution, and consumption of goods and services. Decision making when faced with scarcity of resources
Economics
The growing ability of the economy to produce goods and services
Economic growth
A phrase used by Adam Smith to refer to the way in which an individual’s pursuit of self-interest can lead, without the individual’s intending it, to good results for society as a whole.
Invisible hand
an economy in which decisions about production and consumption are made by individual producers and consumers
Market Economy
The situation in which a market fails to be efficient.
Market Failure
The branch of economics that is concerned with the overall ups and downs in the economy.
Macroeconomics
The branch of economics that studies how people make decisions and how those decisions interact.
Microeconomics
A period of economic downturn when output and unemployment are falling; also referred to as a contraction.
Recession
The advantage conferred on an individual in an activity if he or she can do it better than other people.
Absolute advantage
A transaction in which people directly exchange goods or services that they have for goods or services that they want
Barter
A diagram that represents the transactions in an economy by two kinds of flows around a circle: flows of physical things such as goods and labor in one direction and flows of money to pay for these physical things in the opposite direction
Circular-flow diagram
The advantage conferred on an individual or nation in producing a good or service if the opportunity cost of producing the good or service is lower for that individual or nation than for other producers.
Comparative advantage
Markets in which firms buy the resources they need to produce goods and services.
Factor Markets
An organization that produces goods and services for sale.
Firm
A simple prediction of the future.
Forecast
A person or a group of people who share income.
Household
The way in which total income is divided among the owners of the various factors of production.
Income distribution
The resources used to produce goods and services. Labor and capital are examples of.
Factors of production
Markets in which firms sell goods and services that they produce to households
Markets for goods and services
A simplified representation of a real situation that is used to better understand real-life situations.
Model
The branch of economic analysis that makes prescriptions about the way the economy should work.
Normative economics
The branch of economic analysis that describes the way the economy actually works.
Positive economics
A model that illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity produced of the other.
Production Possibility Frontier (PPF)
