Chapter 1
Economics & Finance 231 with Arnot at Western Carolina University
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The social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity
Economic perspective
Economic way of thinking
Opportunity costs
Sacrificing the opportunity of getting the next best thing to obtain more of one thing
Utility
The pleasure, happiness, or satisfaction obtained from consuming a good or service
Marginal analysis
Comparisons of marginal benefits and marginal costs; usually for decision making
Scientific method
Method of observation that adheres to scientific principles
Economic principle
A very well-tested and widely accepted theory
Other-things-equal assumption (Ceteris paribis)
The assumption that factors other than those being considered do not change
The part of economics concerned with individual units such as a person, a household, a firm, or an industry
The part of economics concerned with examining either the economy as a whole or its basic subdivisions or aggregates, such as the government, household, and business sectors
Aggregate
A collection of specific economic units treated as if they were one unit
Positive economics
Focuses on facts and cause-and-effect relationships; includes description, theory development, and theory testing (or theoretical economics)
Normative economics
Incorporates value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal (policy economics)
Economizing problem
The need to make choices because economic wants exceed economic means
Budget line
A schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income
Includes all natural resources used in the production process, such as arable land, forests, mineral & oil deposits, and water resources
Consists of the physical and mental talents of individuals used in producing goods and services
Capital (goods)
Includes all manufactured aids used in producing consumer goods and services, including all factory, storage, transportation, and distribution facilities, as well as tools and machinery
The purchase of capital goods
Entrepreneurial ability
A special human resource, apart from labor, that performs several economic functions that are essential to economic production
Factors of production
The combination of land, labor, capital, and entrepreneurial ability to produce goods and services
Consumer goods
Products that satisfy our wants directly
Capital goods
Products that satisfy our wants indirectly by making possible more efficient production of consumer goods
Production possibilities curve
Display of the different combinations of goods and services that society can produce in a fully employed economy, assuming a fixed availability of supplies of resources and constant technology
Law of increasing opportunity costs
As the production of a particular good increases, the opportunity cost of producing an additional unit rises as well
Economic growth
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