Macroeconomics

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Command Economy: an economy in which the government makes all economic decisions about how the factors of production are used.

Market Economy: the forces of supply and demand determine how economic questions will be asked.

Traditional Economy: an economy in which economic decisions are made based on tradition.

Factors of Production: land, labor, capital, entrepreneurial abilities. (resources)

Resources: the factors of production.

Scarcity: when there are not enough resources to satisfy our unlimited needs and wants.

Opportunity Cost: the value of the next best alternative.

What goods will be produced?

How will resources be used in the production process?

Who will receive the goods?

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Production Possibilities Curve/Frontier: a graphic representation of the production relationship between two goods.

Capital and Consumer Goods: capital goods are those used in the production process while consumer goods are those used by people in their day to day lives.

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Absolute Advantage is the ability to produce a good or service more efficiently or by using fewer resources.

Comparative Advantage is the ability to produce a good or service at a lower opportunity cost than another nation.

Demand is how much of a good or service consumers are willing and able to purchase at every price level.

Quantity Demanded is how much of a good or service consumers are willing and able to purchase at one price level.

Law of Demand is that there is an inverse relationship between price and quantity demanded.

Income Effect is the price of a good affects the amount of a good or service a consumer is willing and able to purchase.

Substitution Effect is when a consumer will substitute a cheaper product for a more expensive one.

Supply is how much of a good or service producers are willing and able to supply at every price.

Quantity Supplied is how much of a good or service producers are willing and able to supply at one price level.

Law of Supply is when there is a direct relationship between price and quantity supplied.

Equilibrium is the intersections of two economic lines such as supply and demand where quantity supplied and demanded are equal at a specific price.

Shortage is when quantity demanded is greater than quantity supplied.

Surplus is when quantity supplied is greater than quantity demanded.

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Price Ceiling is when government sets a price below equilibrium.

Price Floor is when government sets a price above equilibrium.