BASIC TERMINOLOGIES

OF MICROECONOMICS

Jezzalyn Geronimo Lingo

BSBA-HRDM
2-HRDM (SATURDAY 12:00-3:00 PM)

Chapter One
economics -the study of choices people make in a world of limits
*choice- the act of selecting one of many alternative things to do or consume
scarcity- people cannot have everything they want; resources and goods are
limited compared to desires.
goods- things people want.
scarce goods- things people want that are limited quantities compared to the desire
for them; also called economic goods
resources- things that are used to make goods. Sometimes called factors or inputs.
These include land, labor, skills, capital, and natural resources.
*land- the resource of space, especially when used to produce food. Generally,
land can usually be used over and over without vanishing.
*labor- the time of people as they work to produce things.
*skills- ability, talents, and training enabling people to produce things.
*capital- a man-made resource, such as machines, tools, and equipment. Capital
usually lasts a long time, and can be used without being used up.
*natural resources- resources such as oil, coal, minerals, lumber, and water which
can be extracted from nature or produced in time with its help.
*products- goods or services which have been produced. Sometimes called output.
choices in economics -some of the choices that economics deals with are (1)
which goods (or outcomes) we will pursue, (2) how will we obtain the goods or
outcomes, and (3) who will get each good or benefit from the outcome?
rationing- distribution of scarce goods and resources, either by charging of prices
or other means.
costs -things that have to be given up

free good -a good that is not scarce, and therefore a good that has no cost; there is
no such thing
conflict -differences in opinions about what should be done or how it is to be
accomplished
competition- conflicts and contests to gain control or use of scarce goods and
resources. Competition is the natural result of scarcity and thus exists, in some
form, whenever people's desires differ.
values- personal feelings about how desirable things or outcomes are
subjective values- different people view things and outcomes differently.
rational decision-making -choosing or behaving in the way that best gets a person
what he or she wants, given the circumstances
*economic theory- ideas and models that describe the cause and effect
relationships that are involved when decisions are made.
*scientific thinking- the approach we will take to economics; we try to predict a
decision or its results rather than describe exactly how it is made or judge whether
we agree with it.
scientific method -the approach of science; formulate a theory, test it, and revise it
until it explains and predicts
model -a simplification or simplified theory
ceteris paribus- examining the effects of one event or circumstance in isolation
from everything else by assuming that nothing else is changing. The term is Latin
for "everything else being the same."
association- when one event happens at the same time or after another event, but
one has not necessarily caused the other.
causation- when one event makes another event happen.
as-if -observing that a person's actions may be the same as they would be if they
were doing something they may not be actually doing

normative economics- subjective judgments about what ought to be or what

should happen. These cannot be tested or proven scientifically, as they are only
opinion.
positive economics- scientific study of things as they are, often involving if-then
relationships.
microeconomics- the study of small-scale decisions and their results. These
include the production, consumption, and trade decisions made by individuals,
households, business firms, and industries. Government regulation of trade,
production, and consumption is also studied.
private sector - businesses and individuals
macroeconomics- the study of large scale decisions and their results. These
include spending, taxing, production, and wealth transfer decisions by
governments and countries. The policy decisions that result in unemployment,
inflation, economic growth, and high interest rates are also studied
public sector -government