scarce
the quantity available isn't large enough to satisfy all productive uses
ex: gas and lumber
individual choice
the decision of what to do, which necessarily involves a decision of what not to do
tradeoff
you give up one thing to obtain something in return
opportunity cost
what you must give up in order to get it
services
activities produced in an economy
an economy
a system for coordinating the production and distribution of goods and services
3 main coordination problems
1. what, and how much to produce
2. how to produce it
3. for whom to produce it
production possibility curve
illustrates the trade-offs facing an economy that produced 2 goods
- efficiency
- shows the max quantity of one good that can be produced for any given production of the other
efficiency
combating the concept of scarcity
economic growth
allows a sustained rise in aggregate output
capital goods
human made products used by a business to produce consumer or other capital goods
consumer goods
products used by consumers directly
economist resources
land, labor, capital, entrepreneurship
land
anything drawn from nature for use in the production of goods and services
ex: water, clay
labor
the time and effort people contribute to the production process
capital
anything long lasting that is created by humans for use in the production of other things
entrepreneurship
the willingness of people to organize, operate, and assume the risks involved with business ventures
Adam Smith
began the study of economics, wrote the first textbook "wealth of nations"
invisible hand
society being guided by own self-interest
trade
key to much better standard of living; the reason we have an economy is that there are gains from trade
specialization
a particular area which someone or an economy concentrates on or is an expert in
-everyone has a role or interest
absolute advantage
the ability of an actor to produce more of a good or service than a competitor
comparative advantage
the ability of an actor to produce a good or service for a lower opportunity cost than a competitior
comparative advantage
the basis for trade
- trade can be beneficial to both even if one has an absolute advantage in the production of both goods
self-interest
the best motivation for society
macroeconomics
a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole
2 macroeconomic gauges
1. GDP
2. Unemployment
3. Inflation
GDP
gross domestic product
- everything produced in the economy
unemployment
the total number of people who are actively looking for work but aren't currently employed
inflation
measurement of wealth/money
- an increase in prices and fall in purchasing value of money
freshwater
conservative, supply side
- FDR funds colleges for economic research on freshwater coasts
saltwater
liberal demand side
- more salt more funding/supply
- FDR funds colleges for economic research
business cycle
the short-run alternation between economic downturns and economic upturns
depression
a very deep and prolonged downturn
recessions
periods of economic turndowns when output and employment are falling
expansions
sometimes called recoveries, are periods of economic upturns when output and employment are rising
business-cycle peak
the point at which the economy turns from expansion to recession
business-cycle through
the point at which the economy turns from recession to expansion
economic growth
an increase in the maximum possible output of an economy
model
is a simplified representation of a real situation that is used to better understand real-life situations
"other things equal"
all other relevant factors remain unchanged
employment
the total number of people currently working for pay
labor force
the sum of employment and unemployment
unemployment rate
the annual percentage of the labor force that is unemployed
inflation rate
the annual percent change in the aggregate price level
aggregate output
the economy's total production of goods and services for a given time period