| A | B |
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| Economics | It is the social science concerned with the efficient use of scare resources to achieve the maximum satisfaction of economic wants. |
| Economic perspective | Economic way of thinking |
| Opportunity Cost | The next best alternative |
| Core of economics | "there is no such thing as a free lunch" |
| Marginal analysis | Comparisons of marginal benefits and marginal costs |
| John Maynard Keynes | One of the most influential economists |
| The economic perspective stresses: | (a) resource scarcity and the necessity of making choices (b) the assumption of rational behavior (c) comparisons of marginal benefit and marginal cost |
| Scientific method | The procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws |
| Theoretical economics | Establishing economic theories by gathering, systematically arranging and generalizing from facts |
| Principles | Statements about economic behavior or the economy that enable prediction of the probable effects of certain actions |
| Analytical economics | The ascertaining of cause and effect, of action and outcome, within the economic system |
| Hypothesis | Needs initial testing |
| Theory | has been tested but needs more testing |
| Law/principle | A theory that has provided strong, predictive accuracy over and over |
| Generalizations | Statement of the nature of the relationship between two or more sets of facts |
| Other-thing-equal assumption | The assumption that factors other than those being considered are held constant |
| Abstractions | Simplifications that omit irrelevant facts and circumstances |
| Policy Economics | The formulation of courses of action to bring about desired economic outcomes or to prevent undesired occurrences |
| Basic steps in policy making: | 1. State the goal 2. Determine the policy options 3. Implement and evaluate the policy that was selected |
| Economic growth | Produce more and better goods and services/develop a higher standard of living |
| Full Employment | Provide suitable jobs for all citizens who want to work |
| Economic efficiency | Achieve the maximum fulfillment of wants using the avilable productive resources |
| Price-level stability | Avoid inflation and deflation |
| Economic freedom | Guarantee that businesses, workers, and consumers have a high degree of freedom in their economic activities |
| Equitable distribution of income | Ensure that no group of citizens faces poverty while most others enjoy abundance |
| Economic security | Provide for those who are chronically ill, disabled, laid off, aged, or otherwise unable to earn minimal levels of income |
| Balance of trade | Seek a reasonable overall balance with the rest of the world in international trade and financial transactions |
| Tradeoffs | The sacrifice of some or all of one economic goal, good, or service to achieve some other goal, good, or service |
| Macroeconomics | The part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy |
| Microeconomics | The part of economics concerned with such individual units as industries, firms, and households and individual markets, specific goods and services, and product and resource prices |
| Positive economics | The analysis of facts of data to establish scientific generalizations about economic behavior |
| Normative economics | The part of economics involving value judgements about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics |
| Fallacy of composition | The false notion that what is true for the individual (or part) is necessarily true for the group (or whole) |
| Direct relationship | The relationship between two variables that change in the same direction |
| Inverse relationship | The relationship between two variables that changes in opposite directions |
| Independent variable | The variable causing a change in some other variable |
| Dependent variable | A variable that changes as a consequence of a change in some other variable; the "effect" or outcome |
| Vertical intercept | The point at which a line meets the vertical axis of a graph |
| Economizing problem | The choices necessitated because society's economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited |
| Utility | The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service |
| Economic resources | The land, labor and capital that are used in the production of goods and services; productive agents; factors of production |
| Land | Natural resources used to produce goods and services |
| Labor | People's physical and mental talents and efforts that are used to help produce goods and services |
| Capital | Human-made resources used to produce goods and services; goods that do not directly satisfy human wants; also called capital goods |
| Entrepreneurial ability | The human resource that combines the other resources to produce a product, makes non-routine decisions, innovates, and bears risk |
| Factors of production | Economic resources: land, labor, capital |
| Full employment | Everyone who is able and willing to work has a job |
| Full production | Employment of available resources so that the maximum amount of goods and services is produced; occurs when both productive efficiency and allocative efficiency are realized |
| Productive efficiency | The production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs |
| Allocative efficiency | The apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which its marginal cost and price or marginal benefit are equal |
| Fixed resources | Any resource whose quantity cannot be changed by a firm in the short run |
| Consumer goods | Products and services that satisfy human wants directly |
| Production possibilities curve | A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed |
| Law of increasing opportunity costs | The principle that as the production of a good increases, the opportunity cost of production an additional unit rises |
| Market system | An economy in which only the private decisions of consumers, resource suppliers, and firms determine how resources are allocated; the market system |
| Capitalism | An economic system in which property resources are privately owned and marketes and prices are used to direct and coordinate economic activities |
| Command system | A method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities; command eocnomy |
| Resource market | A market in which households sell and firms buy resources or the services of resources |
| Product market | A market in which products are sold by firms and bought by households |
| Circular flow model | The flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and from households to firms |
