Economics Definition

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Economics Definition

1) Scarcity- the limited nature of society’s resources
2) Economics- the study of how society manages it’s scarce resources 3) Efficiency- the property of society getting the most it can from it’s scarce resources 4) Equality- the property of distributing economics prosperity uniformly among the members of society 5) Opportunity cost- whatever must be given up or forgone to obtain some item 6) Rational people- people who systematically and purposefully do the best they can to achieve their objectives 7) Economics studies how we use our scare resources in production and to exchange and consume goods and services according to the prevailing economic system 8) Economic agents engage in production, exchange, specialization and consumption 9) Scarce resources are land, labor, capital resources, enterprise, the demand for which exceed the supply if they were given away free 10) Resources are the land, natural resources, labor, capital and enterprise that can be combined to produce goods and services. They are also called the factors of production 11) Scarcity exists when the amount of good or resources offered is less than what users would want if it were given away free 12) Specialization is the use of resources to their best advantage 13) Exchange is the trading of goods and services produced through specialization 14) Specialization and exchange raise material well-being 15) The arrangements and institutions that deal with scarcity are called the economics system 16) Under capitalism, resources are privately owned and people make their own economic decisions 17) Under socialism, the state owns the resources and makes the economic decisions 18) The economic problem is how to choose what products to produce; how they are to be produced; and for whom 19) Wants are what people would wish to have if the price were zero 20) The law of scarcity states the wants always exceed our ability to meet these wants 21) What refers to what goods and services to produce

22) How refers to how to combine resources to produce output. 23) For whom refers to how output is divided among people


1) Production-The transformation of inputs into outputs by firms in order to earn profit (or to meet other objectives) 2) Consumption-The act of using goods and services to satisfy wants, this normally involves purchasing of goods and services 3) Factors of production (resources)- The inputs into the production of goods and services: Labor, land, raw materials and capital. 4) Labor- All forms of human input, physical or mental, into current production. 5) Land and raw materials- inputs into production that are provided by nature, e.g. unimproved land and mineral deposits in the ground 6) Capital- All inputs into production that have to be produced in the first place, factories, machines and tools 7) Scarcity is the excess of human wants over what can actually be produced. Because of scarcity, various choices have to be made between alternatives. Macroeconomics- the branch of economics that studies the economic aggregates (grand totals). E.g. the overall level of prices, output and employment in the economy. 8) Aggregate demand- the total level of spending in the economy.

9) Aggregate supply- the total amount of output in the economy

10) Microeconomics- the branch of economics that studies individual units: e.g. households, firms, and industries. It studies the interrelationships between these units in determining the pattern of production and distribution of goods and services.

11) Rate of inflation- the percentage increase in the level of prices over a 12-month period.

12) Balance of trade- exports of goods and services minus imports of goods and services, if exports exceed imports, there is a ‘balance trade...
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