Term/Front
Definition/Back
Economics
A social science that studies how to manage scarce resources to satisfy unlimited human wants and needs.
Economic Resources
The four factors of production include Land, Labor, Capital, and Entrepreneurship, which are essential in producing goods and services.
Opportunity Cost
The cost of the next best alternative foregone when making a decision, highlighting the trade-offs involved in resource allocation.
Comparative Advantage
The ability of a party to produce a good at a lower opportunity cost than another party, forming the basis for trade benefits.
Microeconomics
A branch of economics that focuses on the behavior of individual consumers, producers, and specific markets.
Macroeconomics
A branch of economics that deals with aggregates and the overall functioning of the economy at national and international levels.
Positive Economic Analysis
A type of economic analysis that examines and describes how things actually work in the economy.
Normative Economic Analysis
An economic analysis that involves judgments about what ought to be, focusing on policy recommendations rather than observations.
Economic Theories
Propositions that scientifically explain the relationships between certain variables and their effects on economic phenomena.
Economic Models
Simplified representations of economic theories used to illustrate, demonstrate, and explain complex phenomena, often using graphs or mathematical formulas.
Fallacies in Economic Models
Errors in reasoning that can arise when interpreting models and theories, such as post hoc fallacy and ceteris paribus assumption fallacy.
The Three Basic Economic Questions
Questions addressing what to produce, how to produce, and for whom to produce, fundamental to understanding an economic system.
Market Economic System
An economic system that responds to the three basic economic questions by producing goods based on profit motives and supply and demand.
Command Economic System
An economic system where the government makes decisions on the production and distribution of goods and services, such as public goods.
Mixed Economic System
An economic system that combines elements of both market and command economies to address economic needs and objectives.
Trade
The exchange of goods and services between parties, which involves identifying the benefits of giving up one good for another.
Trade-off
The decision-making process that involves comparing the costs and benefits of alternative choices, such as selecting between different beverages.
Ceteris Paribus
A Latin phrase meaning “all other things being equal,” used in economic analysis to isolate the effect of one variable while holding others constant.
Fallacy of Composition
An error in reasoning that occurs when it is assumed that what is true for an individual is also true for the group as a whole.
Entrepreneurship
The factor of production that involves the ability to combine land, labor, and capital to create and manage a business.
Scarcity
The fundamental economic problem arising from limited resources in the face of unlimited human wants and needs.
Labor
The human input in production, encompassing both the physical and intellectual efforts of workers.
