Economics Vocabulary and Notes. Chapter 1 PDF

Preview

Summary

Download Economics Vocabulary and Notes. Chapter 1 PDF

Description

Economics Vocabulary/Notes (Chapter 1): In-text Vocab Definitions: 1. scarcity, which means that although our wants are unlimited, the resources available to fulfill those wants are limited 2. Economics is the study of the choices consumers, business managers, and government officials make to attain their goals, given their scarce resources. 3. Economic models are simplified versions of reality used to analyze real-world economic situations. 4. A market is a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. 5. Economists refer to analysis that involves comparing marginal benefits and marginal costs as marginal analysis. 6. trade-offs: Producing more of one good or service means producing less of another good or service. In fact, the best measure of the cost of producing a good or service is the value of what has to be given up to produce it. 7. The opportunity cost of any activity—such as producing a good or service—is the highest-valued alternative that must be given up to engage in that activity. The concept of opportunity cost is very important in economics and applies to individuals as much as it does to firms or society as a whole. 8. A society can have a centrally planned economy in which the government decides how economic resources will be allocated. 9. market economy in which the decisions of households and firms interacting in markets allocate economic resources. 10. A mixed economy is still primarily a market economy because most economic decisions result from the interaction of buyers and sellers in markets. However, the government plays a significant role in the allocation of resources. 11. Productive efficiency occurs when a good or service is produced at the lowest possible cost. 12. Allocative efficiency occurs when production is in accordance with consumer preferences 13. With voluntary exchange, both the buyer and the seller of a product are made better off by the transaction. We know that they are both made better off because, otherwise, the buyer would not have agreed to buy the product or the seller would not have agreed to sell it 14. Equity The fair distribution of economic benefits. 15. An economic variable is something measurable that can have different values, such as the incomes of doctors. 16. Positive analysis is concerned with what is. Economics is about positive analysis, which measures the costs and benefits of different courses of action 17. normative analysis is concerned with what ought to be 18. Microeconomics is the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Microeconomic issues include explaining how consumers react to changes in product prices and how firms decide what prices to charge for the products they sell. Microeconomics also involves policy issues, such as analyzing the most efficient way to reduce teenage smoking, analyzing the costs and benefits of approving the sale of a new prescription drug, and analyzing the most efficient way to reduce air pollution. 19. Macroeconomics is the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. Macroeconomic issues include explaining why economies experience periods of recession and increasing unemployment and why, over the long run, some economies have grown much faster than others. Macroeconomics also involves policy issues, such as whether government intervention can reduce the severity of recessions. Side Vocab Definitions: 1. Scarcity A situation in which unlimited wants exceed the limited resources available to fulfill those wants. 2. Economics The study of the choices people make to attain their goals, given their scarce resources. 3. Economic model A simplified version of reality used to analyze real-world economic situations. 4. A market is a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. 5. Marginal analysis Analysis that involves comparing marginal benefits and marginal costs. 6. Trade-off The idea that, because of scarcity, producing more of one good or service means producing less of another good or service. 7. Opportunity cost. The highest-valued alternative that must be given up to engage in an activity. 8. Centrally planned economy An economy in which the government decides how economic resources will be allocated. 9. Market economy An economy in which the decisions of households and firms interacting in markets allocate economic resources. 10. Mixed economy An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources. 11. Productive efficiency A situation in which a good or service is produced at the lowest possible cost. 12. Allocative efficiency A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it. 13. 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. 14. Equity The fair distribution of economic benefits.

15. Economic variable Something measurable that can have different values, such as the incomes of doctors Minor Vocab Definitions: 1. marginal to mean “extra” or “additional.” 2. economic problem that it has only a limited amount of economic resources—such as workers, machines, and raw materials—and so can produce only a limited amount of goods and services 3. economic models make behavioral assumptions about the motives of consumers and firms. 4. This process is often referred to as the scientific method. Economics is a social science because it applies the scientific method to the study of the interactions among individuals. Because economics studies the actions of individuals, it is a social science Facts/Info/Notes: 1. An economic hypothesis is usually about a causal relationship; in this case, the hypothesis states that lower incomes cause, or lead to, fewer doctors entering primary care. 2. Economists accept and use an economic model if it leads to hypotheses that are confirmed by statistical analysis 3. In each case, consumers, firms, and the government face the problem of scarcity by trading off one good or service for another. And each choice made comes with an opportunity cost, measured by the value of the best alternative given up 4. Economists reason that the optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost— MB = MC. 5. Firms choose how to produce the goods and services they sell. In many cases, firms face a trade-off between using more workers or using more machines 6. To develop a model, economists generally follow these steps: 1. Decide on the assumptions to use in developing the model. 2. Formulate a testable hypothesis. 3. Use economic data to test the hypothesis. 4. Revise the model if it fails to explain the economic data well. 5. Retain the revised model to help answer similar economic questions in the future. 7. In the United States, who receives the goods and services produced depends largely on how income is distributed. The higher a person’s income, the more goods and services he or she can buy. 8. As a result, the standard of living of the average person in a centrally planned economy tends to be low. All centrally planned economies have also been political dictatorships 9. We can conclude that market economies respond to the question: “Who receives the goods and services produced?” with the answer: “Those who are most willing and able to buy them.” 10. Competition will force firms to continue producing and selling goods and services as long as the additional benefit to consumers is greater than the additional cost of production.

Conclusion: Economics is a group of useful ideas about how individuals make choices. Economists have put these ideas into practice by developing economic models. Consumers, business managers, and government policymakers use these models every day to help make choices...