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Flashcards in Fundamentals Ch.1 Deck (35):
1

Macroeconomics

Examines the entire economy of a state, a country, or even the world. (Inflation, GDP, and Unemployment)

2

Microeconomics

The study of the economy at the small-scale level, examining individuals and specific markets.

3

Resource

An item, whether a gift of nature, the result of production, or the result of human effort, that is used to produce goods and services.

4

Land

All natural resources used in production; sometimes referred to as "gifts of nature."

5

Labor

All physical and mental activity devoted to producing goods and services.

6

Capital

The tools, machinery, infrastructure, and knowledge used to produce goods and services.

7

Physical capital

Tangible items that are created to increase productivity.

8

Human capital

The knowledge and skills that people acquire in order to increase productivity.

9

Entrepreneurial ability

The talent or ability to combine land, labor, and capital to produce goods and services. (Assumes risk/ creates productive process)

10

Scarcity

A condition that results from the inability of limited resources to satisfy unlimited wants.

11

Relative scarcity

The comparison of the scarcity of one good, service, or resource to that of another. (Drinkable water vs water).

12

Allocation

The process of assigning a good, service, or resource to one use instead of another.

13

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.

14

Self interest

The idea that people choose to do things that interest them.

15

Marginal benefit

The additional benefit associated with 1 more unit of an activity

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Marginal cost

The additional cost associated with 1 more unit of an activity

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Marginal decision making

The process of making choices in increments by evaluating the additional, or marginal, benefit against the additional, or marginal, cost of an action.

18

Optimization

The idea that people make choices in order to maximize the overall benefit. Marginal Benefit MUST be equal or Greater than marginal cost

19

Decreasing marginal benefit

The NEGATIVE relationship between the marginal benefit associated with the use of good or service and the quantity consumed. (Rollercoasters lose thrill the more you ride it)

20

Increasing marginal cost

The POSITIVE relationship between the marginal cost associated with the use of a good or services and the quantity produced.

21

Optimal level of output

The level of output at which the marginal benefit of the last unit produced and consumed is equal to the marginal cost of that unit. ( MB= MC )

22

Production possibilities schedule

A table that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology.

23

Production possibilities frontier (PPF)

A 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.

24

Constant Opportunity Cost

A 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.

25

Efficient allocation of resources

Allocation of resources in such a way that it is possible to increase the production of one good only by decreasing the production of another.

26

Inefficient allocation of resources

Allocation of resources in such a way that it is possible to increase the production of one good only by decreasing the production of another.

27

Constant opportunity costs

A characteristic of production whereby the opportunity cost associated with increasing or decreasing the production of one good or service, in terms of another, is constant at every level of production.

28

Comparative advantage

The ability to produce a good or service at a lower relative opportunity cost than that of another producer.

29

Specialization

The ability to produce a good or service at a lower relative opportunity cost than that of another producer.

30

Terms of trade

The price of one good, service, or resource in terms of another. (1 apple for 4 oranges)

31

Gains from trade

The 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.

32

LAW of increasing opportunity cost

A principle in economics which holds that since some resources are better suited to producing one good or service than another, as the production of a good or service increases, the opportunity cost of each additional unit rises.

33

Circular Flow Model

A model that concisely describes how goods, services, resources, and money flow back and forth in an economy.

34

Circular Flow: Households

Households supply resources (inputs of production) to firms through the resource market; in exchange, households receive monetary payments, also known as income, from firms. Those payments are a cost to firms.

35

Circular Flow Firms

Firms use the inputs of production to produce goods and services. Households then use their income to buy those goods and services from firms in the product market. These monetary payments are consumption expenditures for the households and revenues for the firms.