Chapter 1
means human wants for goods and services exceed the available supply.
Scarcity
measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative
opportunity cost
the relationship between price and the quantity demanded of a certain good or service
demand
unemployment closely tied to the business cycle, like higher unemployment during a recession
cyclical unemployment
negative inflation; most prices in the economy are falling
deflation
an economy where economic decisions are passed down from government authority and where the government owns the resources
command economy
costs that we make in the past that we cannot recover
sunk cost
the situation where quantity demanded is equal to the quantity supplied
equilibrium
those who have stopped looking for employment due to the lack of suitable positions available
discouraged workers
an outburst of high inflation that often occurs (although not exclusively) when economies shift from a controlled economy to a market-oriented economy
hyperinflation
the way in which different workers divide required tasks to produce a good or service
division of labor
all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set
budget constraint
the common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constant
law of demand
unemployment that occurs as workers move between jobs
frictional unemployment
a general and ongoing rise in price levels in an economy
inflation
measure of the size of total production in an economy
GDP
statement which describes how the world should be
normative statement
the common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, while all other variables are held constant
law of supply
individuals who are employed in a job that is below their skills
underemployment
a contractual provision that wage increases will keep up with inflation
cost of living adjustments (COLAs)
the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance
macroeconomics
statement which describes the world as it is
Positive Statement
a legal minimum price
price floor
the percentage of adults who are in the labor force and thus seeking jobs, but who do not have jobs
unemployment rate
a measure of inflation that U.S. government statisticians calculate based on the price level from a fixed basket of goods and services that represents the average consumer's purchases
Consumer Price Index