Download Unit 1 Vocabulary

Unit 1 Vocabulary
Modules 1-7
1. Economics: the study of scarcity and choice
2. Individual choice: decisions by individuals about what to do, which necessarily involve decisions
about what not to do
3. Economy: a system for coordinating a society’s productive and consumptive activities
4. Market economy: decisions of individual producers and consumers largely determine what, how,
and for whom to produce, with little government involvement in the decisions
5. Command economy: industry is publically (for example, government) owned, and a central authority
makes production and consumption decisions
6. Incentives: rewards or punishments that motivate particular choices
7. Property rights: establish ownership and grant individuals the right to trade goods and services with
each other
8. Marginal analysis: the study of the costs and benefits of doing a little bit more of an activity versus a
little bit less
9. Resource: anything that can be used to produce something else
a. Land: all resources that come from nature, such as minerals, timber, and petroleum
b. Labor: the effort of workers
c. Capital: manufactured goods used to make other goods and services
d. Entrepreneurship: the efforts of entrepreneurs in organizing resources for production,
taking risks to create new enterprises, and innovating to develop new products and
production processes
10. Scarce resource: not available in sufficient quantities to satisfy all the various ways a society want to
use it
11. Opportunity cost: the real cost of an item; what you must give up in order to get it
12. Microeconomics: the study of how individuals, households, and firms make decisions and how those
decisions interact
13. Macroeconomics: concerned with the overall ups and downs of the economy
14. Economic aggregates: economic measures that summarize data across many different markets
15. Positive economics: the branch of economic analysis that describes the way the economy actually
works
16. Normative economics: makes prescriptions about the way the economy should work
17. Business cycle: the alternation between economic downturns, known as recessions, and economic
upturns, known as expansions
18. Depression: a very deep, prolonged downturn
19. Recession: period of economic downturn when output and employment are falling
20. Expansion: recovery; period of economic upturn when output and employment are rising
21. Employment: the number of people who are currently working for pay in the economy
22. Unemployment: the number of people who are actively looking for work but aren’t currently
employed
23. Labor force: the sum of employment and unemployment
24. Unemployment rate: the percentage of the labor force that is unemployed
25. Output: quantity of goods and services produced
26. Aggregate output: the economy’s total production of goods and services for a given time period
27. Inflation: a rising overall price level
28. Deflation: a falling overall price level
29. Price stability: the overall price level in an economy is changing either not at all or only very slowly
30. Economic growth: an increase in the maximum amount of goods and services an economy can
produce
31. Model: a simplified representation used to better understand a real-life situation
32. Ceteris paribus assumption: also known as the “other things equal” assumption; means that all
other relevant factors remain unchanged
33. Trade-off: giving up something in order to have something else
34. Production possibilities curve (PPC): also known as the production possibilities frontier; illustrates
the trade-offs facing an economy that produces only 2 goods; it shows the maximum quantity of 1
good that can be produced for each possible quantity of the other good produced
35. Efficient: an economy is efficient if there is no way to make anyone better off without making at
least one person worse off.
a. Productive efficiency: also known as “efficient in production;” an economy achieves this if it
produces at a point on its PPC
b. Allocative efficiency: also known as “efficient in allocation;” an economy achieves this if it
produces at the point along its PPC that makes consumers as well off as possible
36. Technology: the technical means for producing goods and services
37. Trade: in a market economy, individuals engage in trade; they provide goods and services to others
and receive goods and services in return
38. Gains from trade: people can get more of what they want through trade than they could if they tried
to be self-sufficient; this increase in output is due to specialization
39. Specialization: each person specializes in the task that he or she is good at performing
40. Comparative advantage: an individual has a comparative advantage in producing something if the
opportunity cost of that production is lower for that individual than for other people
41. Absolute advantage: an individual has an absolute advantage in producing a good/service if he or
she can make more of it with a given amount of time and resources; having an absolute advantage is
not the same thing as having a comparative advantage
42. Terms of trade: indicate the rate at which one good can be exchanged for another
43. Competitive market: a market in which there are many buyers and sellers of the same good/service,
none of whom can influence the price at which the good/service is sold
44. Supply and demand model: a model of how a competitive market works
45. Demand schedule: a table showing how much of a good/service consumers will want to buy at
different prices
46. Quantity demanded: the actual amount of a good/service consumers are willing and able to buy at
some specific price
47. Demand curve: a graphical representation of the demand schedule, another way of showing the
relationship between the quantity demanded and the price
48. Law of demand: says that a higher price for a good/service, all other things being equal, leads
people to demand a smaller quantity of that good/service
49. Change in demand: a shift of the demand curve, which changes the quantity demanded at any given
price
50. Movement along the demand curve: a change in the quantity demanded of a good that is the result
of a change in that good’s price
51. Substitutes: 2 goods are substitutes if a rise in the price of one leads to an increase in the demand
for the other
52. Complements: 2 goods are complements if a rise in the price of one leads to a decrease in the
demand for the other
53. Normal good: when a rise in income increases the demand for a good, the good is called a normal
good
54. Inferior good: when a rise in income decreases the demand for a good, the good is called an inferior
good
55. Individual demand curve: illustrates the relationship between quantity demanded and price for an
individual consumer
56. Quantity supplied: the actual amount of a good/service producers are willing to sell at some specific
price
57. Supply schedule: a table showing how much of a good/service producers will supply at different
prices
58. Supply curve: shows the relationship between quantity supplied and price
59. Law of supply: says that, other things being equal, the price and quantity supplied of a good are
positively related
60. Change in supply: a shift of the supply curve, which changes the quantity supplied at any given price
61. Movement along the supply curve: a change in the quantity supplied of a good that is the result of a
change in that good’s price
62. Input: a good/service that is used to produce another good/service
63. Individual supply curve: illustrates the relationship between quantity supplied and price for an
individual producer
64. Equilibrium: an economic situation is in equilibrium when no individual would be better off doing
something different
65. Equilibrium price: also known as the market-clearing price; in a competitive market, this is the price
at which the quantity demanded of a good equals the quantity supplied of that good
66. Equilibrium quantity: in a competitive market, this is the quantity of a good bought and sold at the
equilibrium price
67. Surplus: exists when the quantity supplied exceeds the quantity demanded of a good/service; occurs
when the price is above its equilibrium level
68. Shortage: exists when the quantity demanded exceeds the quantity supplied of a good/service;
occurs when the price is below its equilibrium level