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| The social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity. |
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| economic way of thinking, has several critical and closely interrelateed features. |
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| To obtain more of one thing, society forgoes the opportunity of getting the next best thing. The sacrifice is the opportunity cost of the choice. |
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| pleasure, happiness, or satisfaction obtained from consuming a good or service. |
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| comparisons of marginal benefits and marginal costs, usually for decision making. |
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Observing real-world behavior and outcomes.
Based on those observations, formulating a possible explanation of cause and effect (hypothesis).
Testing this explanation by comparing the outcomes of specific events to the outcome predicted by the hypothesis.
Accepting, rejecting, and modifying the hypothesis, based on these comparisons. |
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| A very well tested and widely accepted theory is referred to as an economic law. |
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| other-things-eqal assumption |
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| The assumption that factors other than those being considered do not change. |
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| concerned with decision making by individual customers, workers, households, and business firms. |
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| examines either the economy as a whole or its basic subdivisions or aggregates, such as the government, household, and business sectors. |
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| is a collection of specific economic units treated as if they were one unit. |
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| focuses on facts and cause-and-effect relationships |
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| incorporates value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal. |
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| the need to make choices because economic wants exceed economic means |
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| schedule of curve that shows various combinations of two products a consumer can purchase with a specific money income. |
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| all natural, human, and manufactured resources that go into the production of goods and services. |
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| includes all natural resources used in the production process. |
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| consists of the physical actions and mental activities people contribute to the production of goods and services. |
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| includes all manufactured aids used in producing consumer goods and services |
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| spending that pays for the production and accumulation of capital goods. |
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| land, labor, capital and entrepreneurial ability |
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| products that satisfy our wants directly |
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| products that satisfy our wants indirectly by making possible more efficient production of consumer goods. |
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| production possibilities curve |
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| displays combinations of goods and services that society can produce in a fully employed economy, assuming a fixed availability of supplies of resources and fixed technology. |
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| law of increasing opportunity costs |
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| As the productionof a particular good increases, the opportunity cost of producing an additional unit rises. |
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