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the study of how people make choices among limited alternatives.
the branch of economics that focuses on the choices made by individual decision
the branch of economics that focuses on the impact of choices on the total, or aggregate, level of economic activity
Economic systems primarily face the following
- 1. What get produced?
- 2. How shall it be produced?
- 3. Who gets it?
Define: Positive Statement
Fact, or hypothesis
Value judgement, or opinion
Define: Economic Model
A simplified representation of economic reality showing the interrelationships between selected economic variables
Factors of Production (3)
- 1. Labor
- 2. Capital
- 3. Natural Resources
Define: Natural Resources
Found in nature, with no human involvement; can be used to produce goods and services. (Crude oil, in the ground; etc.)
Natural resource that has been produced into something else. (Early weapons, machines in auto shop.)
- Raw, unskilled labor.
- *Human Capital: no longer considered labor after education, training, experience.
- Knowledge that can be applied to the production
- of goods and services
- · Not necessarily robot/machines; Eli Whitney’s cotton-gin is technology
Seeks to make profits by finding new ways to organize the factors of production
Define: Absolute Advantage
The ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group
Define: Comparative Advantage
- The ability of an individual or group to carry out a particular economic activity more efficiently than another activity.
- Comparative advantage is about relative opportunity cost
Define: Opportunity Cost
The loss of potential gain from other alternatives when one alternative is chosen.