Chapter 1 Economics is the study of scarce resources to satisfy unlimited human wants Factors of production · Land (natural endowments such as arable land, forests, lakes, crude oil, and minerals) · Labour (mental and physical human resources) · Capital (all manufacturing aids to production, such as tools machinery and buildings) Goods: tangible products such as cars or shoes Services: Intangible products such as legal services and education Production: the act of making goods and services Consumption: the act of using goods and services to satisfy wants Opportunity cost: the value of the next best alternative that is forgone when one alternative is chosen Production possibilities boundary: A curve showing which alternative combinations of output can be attained if all available resources are used efficiently; (boundary between attainable and unattainable output combinations) Resource allocation: the allocation of an economy's scarce resources among alternative use Four Key Economic problems: · What is produced and how? · What is consumed and by whom? · Why are resources sometimes idle? · Is productive capacity growing? Microeconomics: the study of the causes and consequences of the allocation of resources as it is affected by the price system Macroeconomics: the study of the determination of economic aggregates such as total output, employment, and growth Economy: system in which scarce resources-labour, land, and capital, are allocated among competing uses Three types of decision makers in an economy: · Consumers (purchase various kinds of goods and services with their income) . Producers (may be firms interested in earning profits or may be non-profit) · Government (hire workers, purchase or rent material or supplies, and produce goods and services
How are decisions made? Maximizing consumers and producers to achieve their objectives; they decide whether they will be made better off by buying or selling a little more or little less of any given product Specialization of labour: the specialization of individual workers in the production of goods or services Division of Labour: the breaking up of production process into a series of specialized tasks, each done by a different worker Barter: economic system in which goods and services are traded directly for other goods and services Globalization: a term used loosely to mean the increased importance of international trade Traditional economies: economy in which behavior is based mostly on tradition Command economy: economy in which most economic decisions are made by a central planning authority Free market economy: economy in which most decisions are made by private households and firms Mixed economies: economy in which some economic decisions are made by firms and households and some by the government
Chapter 2 Normative Statement: a statement about what ought to be, based on a value judgment Positive Statement: a statement about what actually is, was, or will be; not based on value judgment Variable: any well-defined item, such as the price or quantity of a commodity, that can take on various specific tasks Endogenous variable: variable that is explained with a theory, sometimes called an induced variable or a