Chapters 1 and 2 Quiz

tradeoff: The sacrifice of some or all of one economic goal, good, or service to achieve some other goal, good, or service. (G-19)

opportunity cost: The amount of other products that must be forgone or sacrificed to produce a unit of a product. (G-14)

ceteris paribus assumption (other-things-equal assumption): The assumption that factors other than those being considered are held constant. (G-14)

marginal analysis: The comparison of marginal (“extra” or “additional”) benefits and marginal costs, usually for decision making. (G-11)

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. (G-11)

microeconomics: The part of economics concerned with such individual units as industries, firms and households and with individual markets, specific goods and services, and product and resource prices. (G-12)

positive economics: The analysis of facts or data to establish scientific generalizations about economic behavior. (G-15)

normative economics: That part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics. (G-14)

utility: The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services). (G-20)

economic resources: The land, labor, capital, and entrepreneurial ability (CELL) that are used in the production of goods and services; productive agents; factors of production. (G-5)

factors of production: Economic resources: capital, entrepreneurial ability, land, and labor (CELL). (G-7)

full employment: (1) the use of all available resources to produce want-satisfying goods and services; (2) the situation in which the unemployment rate is equal to the full-employment unemployment rate and there is frictional and structural but no cyclical unemployment (and the real GDP of the economy equals the potential output). (G-8)

capital goods: Human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; also called capital. (G-2)

production possibilities table: A table that lists the different combinations of two products that can be produced with a specific set of resources (and with full employment and productive efficiency). (Brue 25)

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. (G-15)

command system: 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. (G-3)

circular flow model: 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. (G-3)

traditional economy: economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services (Sheffrin 557)

consumer goods: Products and services that satisfy human wants directly. (G-3)

entrepreneurial ability: The human resource that combines the other resources to produce a product, makes nonroutine decisions, innovates, and bears risks. (G-6)

land: Natural resources (“free gifts of nature”) used to produce goods and services. (G-11)

labor: People’s physical and mental talents and efforts that are used to help produce goods and services.

law of increasing opportunity costs: The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises. (G-11)

market system: 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. (G-12)

product market: A market in which products are sold by firms and bought by households. (G-15)