The Economic Problem
A condition facing all societies because there are not enough productive resources to satisfy people's unlimited wants
scarcity
incremental, additional, extra, or one more; refers to a change in an economic variable or status quo
marginal
the value of the best alternative passed up for the chosen item or activity
opportunity cost
system with no government
Pure Market Economy
each additional increment of one good requires the economy to give up more of the other good
law of increasing opportunity cost
the inputs used to produce goods and services that people want
productive resources
study of economic behavior in particular markets, such as the market for computers
microeconomics
a cost you have already paid and cannot recover
sunk cost
System controlled entirely by government
Pure Command Economy
the laws, customs, manners, and other institutional understandings that encourage people to pursue productive activity
rules of the game
all human creations used to produce goods and services
capital goods
study of the economic behavior of the economy as a whole, especially national economies
macroeconomics
Why must there be an opportunity cost for every choice you make?
There is a best alternative for every choice!
Transitional Economy
worker, firm, or country with the lowest opportunity cost should specialize in producing that output
comparative advantage
A profit seeker who develops new product or process and assumes the risk of profit or loss
entrepreneur
the means by which buyers and sellers carry out exchange
markets
What is a normative statement?
Reflects opinion
An economy shaped by custom or religion
ability to make something using the fewest resources
absolute advantage
___________________ plays a major role in economics
choice!
model that illustrates the flows of resources and products supported by flows of income
circular flow model
What is a positive statement?
Statement that can be proved or rejected by data
The US is an example of a
mixed/market economy
organizes production process so that each worker specializes in a separate task
division of labor