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Summary Principles of economics ch. 1,2,3,4,5,10,26,27&28
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SUMMARY CHAPTER 1,2,3,4,5,10,26,27,28PRINCIPLES OF ECONOMICS
CHAPTER 1 SUMMARY
Economics
The social science concerned with how individuals, institutions, and society
make optimal (best) choices under conditions of scarcity.
Opportunity Costs
The amount of other products that must be forgone or sacrificed to produce a
unit of a product. (the value of the second best resource)
Utility
The happiness / satisfaction obtained from consuming a good or service.
Marginal Analysis
The comparison of marginal (extra or additional) benefits and marginal costs,
usually for decision making.
Scientific Method
The procedure for the systematic pursuit of knowledge involving the
observation of facts and the formulation and testing of hypotheses to obtain
theories, principles, and laws.
Economic Principle
A statement about economic behavior or the economy that enables prediction
of the probable effects of certain actions.
Other-things-equal assumption
The assumption that factors other than those being considered are held
constant; ceteris paribus assumption. (your visual for 1 thing at the time).
Microeconomics
The part of economics concerned with decision making by individual units such
as a household, a firm, or an industry and with individual markets, specific
goods and services.
Macroeconomics
The part of economics concerned with the economy as a whole; with such
major aggregates as the household, business, and government sectors; and
with measures of the total economy.
Aggregate
A collection of specific economic units treated as if they were one. For
example, all prices of individual goods and services are combined into a price
level, or all units of output are aggregated into gross domestic product.
Positive economics
The analysis of facts or data to establish scientific generalizations about
economic behavior. (‘’what is’’)
Normative economics
The part of economics involving value judgments about what the economy
S.v.v.
,(‘’should be like’’) focused on which economic goals and policies should be
implemented; policy economics.
Economizing problem
The choices necessitated because society’s economic wants for goods and
services are unlimited but the resources available to satisfy these wants are
limited (scarce).
Budget line
A line that shows the different combinations of two products a consumer can
purchase with a specific money income, given the product’s prices.
Economic resources & Factors of production
The land, labor, capital, and entrepreneurial ability that are used in the
production of goods and services, factors of production.
Land
natural resources (free gift of nature) used to produce goods and services.
Labor
People’s physical and mental talents and efforts that are used to help produce
goods and services.
Capital
Human-made resources (buildings, machinery, and equipment) used to
produce goods and services
Entrepreneurial ability
The human resource that combines the other resources to produce a product,
makes nonroutine decisions, innovates, and bears risks.
Investment
In economics, spending for the production and accumulation of capital and
additions to inventories. (For contrast, see financial economics.
S.v.v.
,Consumer goods
Products and services that satisfy human wants directly.
Capital goods
Human-made resources (buildings, machinery, and equipment) used to
produce goods and services; goods that do not directly satisfy human wants;
Production possibilities curve
A curve showing the different combinations of two goods or services that can
be produced in a full-employment, full-production economy where the available
supplies of resources and technology are fixed.
Law of increasing opportunity costs
The principle that as the production of a good increases, the opportunity cost of
producing an additional unit rises.
CHAPTER 2 SUMMARY
Economic system
A particular set of institutional arrangements and a coordinating mechanism for solving
the economizing problem; a method of organizing an economy, of which the market
system and the command system are the two general types.
Command system communism
A method of organizing an economy in which property resources are publicly owned and
government uses central economic planning to direct and coordinate economic activities;
command economy; communism.
Market system capitalism
All the product and resource markets of a market economy and the relationships among
them; a method that allows the prices determined in those markets to allocate the
economy's scarce resources and to communicate and coordinate the decisions
made by consumers, firms, and resource suppliers.
Characteristics of the market system
S.v.v.
,Private property
The right of private persons and firms to obtain, own, control, employ, dispose of, and
bequeath land, capital, and other property.
Freedom of enterprise
The freedom of firms to obtain economic resources, to use those resources to produce
products of the firm's own choosing, and to sell their products in markets of their
choice.
Freedom of choice
The freedom of owners of property resources to employ or dispose of them as they see fit,
of workers to enter any line of work for which they are qualified, and of consumers to
spend their incomes in a manner that they think is appropriate.
Self-interest
That which each firm, property owner, worker, and consumer believes is best for itself and
seeks to obtain.
Competition
The presence in a market of independent buyers and sellers competing with one another
along with the freedom of buyers and sellers to enter and leave the market.
Market
Any institution or mechanism that brings together buyers (demanders) and sellers
(suppliers) of a particular good or service.
Specialization
The use of the resources of an individual, a firm, a region, or a nation to concentrate
production on one or a small number of goods and services.
Division of labor
The separation of the work required to produce a product into a number of different tasks
that are performed by different workers; specialization of workers.
Medium of exchange
Any item sellers generally accept and buyers generally use to pay for a good or service;
money; a convenient means of exchanging goods and services without engaging in barter.
Barter
The exchange of one good or service for another good or service.
Money
Any item that is generally acceptable to sellers in exchange for goods and services.
The use of money makes trading easier.
Consumer sovereignty
Determination by consumers of the types and quantities of goods and services that will be
produced with the scarce resources of the economy; consumers direction of production
through their dollar votes.
Dollar votes
The ‘votes’ that consumers and entrepreneurs cast for the production of consumer and
capital goods, respectively, when they purchase those goods in product and resource
markets.
S.v.v.
, Creative destruction
The hypothesis that the creation of new products and production methods simultaneously
destroys the market power of existing monopolies.
Invisible hand
The tendency of firms and resource suppliers that seek to further their own self-interests
in competitive markets to also promote the interests of society.
Resource market / factor market
A market in which households sell and firms buy resources or the services of resources.
Product market
A market in which products are sold by firms and bought by households.
Circular flow diagram
An illustration showing the flow of resources from households to firms and of products
from firms to households. These flows are accompanied by reverse flows of money from
firms to households and from households to firms.
CHAPTER 3 SUMMARY
Demand
A schedule showing the amounts of a good or service that buyers (or a buyer) wish to
purchase at various prices during some time period.
Demand schedule
A schedule showing the amounts of a good or service that buyers (or a buyer) wish to
purchase at various prices during some time period.
Law of demand
The principle that, other things equal, an increase in a products price will reduce the
quantity of it demanded, and conversely for a decrease in price.
S.v.v.
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