ECON Chapter 1 Notes.txt
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What are the three basic economic questions?
- 1. What to produce.
- 2. How to produce.
- 3. For whom to produce.
The study of how best to allocate scarce resources among competing uses.
Define Opportunity Cost
The most desired goods and services that are forgone in order to obtain something else.
Define Factors of Production
Resource inputs used to produce goods and service; e.g. land, land, capital, entrepreneurship.
Lack of enough resources to satisfy all desired uses of those resources.
Define Production Possibilities
The alternative combinations of goods and services that could be produced in a given time perior with all available resources and technology.
Expenditures on (production of) new plant and equipment (capital) in a given time period plus changes in business inventories.
Define Economic Growth
An increase in output (real GDP) an expansion of production possibilities.
Define market mechanism
The use of market prices and sales to signal desired outputs (or resource allocations)
Define Laissez Faire
The doctrine of �leave it alone� of nonintervention by government in the market mechanism.
Define Mixed Economy
An economy that uses both market and non-market signals to allocate goods and resources.
Define Market Failure
An imperfection in the market mechanism that prevents optimal outcomes.
Costs (or benefits) of a market activity borne by a third party; the difference between the social and private costs (or benefits) of a market activity.
Define government failure
Government intervention that fails to improve economic outcomes.
The study of aggregate economic behavior, of the economy as a whole.
The study of individual behavior in the economy, of the components of the larger economy.
Define Ceteris Paribus
The assumption that nothing else changes
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