Unit 1 - Basic Economic Concepts Guide

Entrepreneurship

the ability of an individual to coordinate the other categories of resources to produce a good or service.

Economic growth

a sustained rise in aggregate output and an increase in standard of living (causes are developments in technology, or an increase in resources)

Scarcity

unlimited wants, limited resources (example: land)

Theories

to understand behavior are proved via a full procedure of hypothesis and testing.

Macroeconomics

we consider the big picture- the nations economy as a whole.

Focuses

is directed at the roles households and firms play and how their decision- making and allocation of resources impact the overall economy.

private property rights

There are ________ which are protected, however, the government is able to intervene in order to meet societal aims.

PPC

If the ________ is linear, it has a constant opportunity cost, if it is curved, it has increasing opportunity costs.

allocate resources

The economy has to decide what goods and services the society needs in order to properly ________.

Optimal consumption rule

to maximize utility, marginal utility per dollar spend on each good= service in consumption bundle, MUc /Pc= MUt /Pt.

Comparative Advantage

The ability of a firm to produce a good or service at the lowest possible cost.

Opportunity costs

This is the cost we forgo or sacrifice, to opt for another choice.

Microeconomics

filters our scope to individuals in an economy while keeping the overall economy in mind.

Human capital

education and training an individual has that is used in the production of a good or service.

Labor

physical labor, skills, and effort devoted into a task where workers are paid.

Absolute Advantage

Occurs when a firm as the ability to produce a specific amount of goods or services in comparison to the others.

Capital

is usually referred to as the liquid asset, or monetary value.

Productive efficiency

lowest cost possible on the PPC.

Allocative efficiency

the economy allocates resources so consumers are well off as possible, producing what is demanded.

Physical capital

tools and equipment used to produce a good or service.

Positive Economics

this approach to economics is based on facts and figures.

Microeconomics

filters our scope to individuals in an economy while keeping the overall economy in mind

Land

natural resources and raw material

Labor

physical labor, skills, and effort devoted into a task where workers are paid

Capital

is usually referred to as the liquid asset, or monetary value

Physical capital

tools and equipment used to produce a good or service

Human capital

education and training an individual has that is used in the production of a good or service

Entrepreneurship

the ability of an individual to coordinate the other categories of resources to produce a good or service

Trade-offs

The alternative choice which must be given up in order to make a decision

Opportunity costs

This is the cost we forgo or sacrifice, to opt for another choice

Positive Economics

this approach to economics is based on facts and figures

Normative Economics

this approach to economics is based on assumptions

Economic growth

a sustained rise in aggregate output and an increase in standard of living (causes are developments in technology, or an increase in resources)

Productive efficiency

lowest cost possible on the PPC

Allocative efficiency

the economy allocates resources so consumers are well off as possible, producing what is demanded

Absolute Advantage

Occurs when a firm as the ability to produce a specific amount of goods or services in comparison to the others

Comparative Advantage

The ability of a firm to produce a good or service at the lowest possible cost

Terms of Trade

people split up the work, and provide each other with a good in return for another

Capital goods

goods that make consumer goods (ex

Consumer goods

goods that are consumed (ex

Implicit costs

monetary or non-monetary opportunity costs in terms of making a choice

Explicit costs

traditional out of pocket costs which are associated with choosing one course of action

Utility

the measure of personal satisfaction (util is a unit of utility)

Marginal utility

the change in total utility by consumer one additional unit of that good/service

Principle of diminishing marginal utility

additional units of a good/service add less total utility than the previous units do

Marginal utility per dollar

MUgood/Pgood (marginal utility of one unit of the good / price of one unit of the good)

Optimal consumption rule

to maximize utility, marginal utility per dollar spend on each good = service in consumption bundle, MUc/Pc = MUt/Pt