chapter 1 terms for exam 1

Chapter 1 Economics- the study of how society uses its scarce resources. scarcity- Ever-present situation in all  HYPERLINK "http://www.businessdictionary.com/definition/market.html" markets  whereby either less HYPERLINK "http://www.businessdictionary.com/definition/goods.html" goods  are available than the  HYPERLINK "http://www.businessdictionary.com/definition/demand.html" demand  for them, or only too little  HYPERLINK "http://www.businessdictionary.com/definition/money.html" money  is available to their potential  HYPERLINK "http://www.businessdictionary.com/definition/buyer.html" buyers  for making the  HYPERLINK "http://www.businessdictionary.com/definition/purchase.html" purchase Choice- HYPERLINK "http://www.businessdictionary.com/definition/selection.html" selection  from a given  HYPERLINK "http://www.businessdictionary.com/definition/group.html" group  or set. Economic interactions-every time people exchange goods with each other Market- and arrangement in which buyers and sellers can exchange goods and services with each other Opportunity cost- the value of the next best forgone item that was not chosen Gains from trade- the reallocation of goods between two individuals in which they both prefer Specialization-people concentrating their production efforts on what their good at. Division of labor-occurs when some workers specialize in one area and another group specializes in another Comparative advantage- is when one group can produce items in a comparatively less time than another group International trade- trade between people in different countries Production possibilities- the theoretical outcomes of producing certain items Increasing opportunity cost- the cost of producing and extra unit of one item leads to the loss of producing more of another item Production possibilities curve- on the curve is efficient, inside side the curve is inefficient, and out side the curve is impossible to produce INCLUDEPICTURE "http://upload.wikimedia.org/wikipedia/commons/d/d7/NewPpf_small.png" \* MERGEFORMAT Market economy- decisions on what to produce is by individuals interacting in markets Command economy- decisions on what to produce is made by the government. Also called a centrally planned economy. Freely determined prices- a characteristic of a market economy. Determined by individuals an firms interacting in markets Property rights-rights over the use sale and proceeds from a good or service. Characteristic of a market economy Incentive-a device that motivates people to take action. Used as so it increases economic efficiency Market failure- any situation in which the market dose not lead into an efficient economic outcome and in which there is a potential role for government. Government failure-the situation in which even the government fails on the market or even makes things worse.