1.8: Key Concepts

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Conclusion

We have covered a lot of ground in this introductory chapter. It is intended to open up the vista of economics to the new student in the discipline. Economics is powerful and challenging, and the ideas we have developed here will serve as conceptual foundations for our exploration of the subject.

Key Concepts

Macroeconomics studies the economy as system in which feedback among sectors determine national output, employment and prices.

Microeconomics is the study of individual behaviour in the context of scarcity.

Mixed economy: goods and services are supplied both by private suppliers and government.

Model is a formalization of theory that facilitates scientific inquiry.

Theory is a logical view of how things work, and is frequently formulated on the basis of observation.

Opportunity cost of a choice is what must be sacrificed when a choice is made.

Production possibility frontier (PPF) defines the combination of goods that can be produced using all of the resources available.

Consumption possibility frontier (CPF): the combination of goods that can be consumed as a result of a given production choice.

A zero-sum game is an interaction where the gain to one party equals the loss to another party.

Economy-wide PPF is the set of goods combinations that can be produced in the economy when all available productive resources are in use.

Productivity of labour is the output of goods and services per worker.

Capital stock: the buildings, machinery, equipment and software used in producing goods and services.

Full employment output .

Recession: when output falls below the economy's capacity output.

Boom: a period of high growth that raises output above normal capacity output.