Chapter 1 Definition of Terms:

Production Possibilities – shows the maximum amounts of two different goods that can
possibly be produced during any particular time period using society's scarce resources.

Efficiency – the usage of knowledge and technology to produce the maximum amount of output
with resources available.

Opportunity cost – best alternative that is forgone to produce or consume something else.

Economic growth – is what could occur if the quality or quantity of society's resources
increase, or if new technologies are developed to produce more output given the resources.

Consumer goods – goods purchased by consumers

Capital goods – goods used to produce other goods

Public goods – goods provided by the government for the community which may include police
and fire protection

Demand schedule – a table that shows the alternative prices and quantities that people are
willing to buy and able to purchase at these prices.

Demand curve – graph of a demand which shows all the possible combinations of alternative
prices and quantity demanded, ceteris paribus.

Law of demand – which states that there is an inverse relationship between price and demand,
which is seen as a downward slope.
Law of supply – states that price and quantity supplied increase together, ceteris paribus,
evidenced in an upward slope.

Scarcity – occurs because there is only a limited amount of world resources available to satisfy
the unlimited human wants.
Shortage – occurs when demand is higher than supply.

Surplus – occurs when supply is greater than demand.

Substitute relationship – occurs when the consumer substitutes one good for the other good.

Spillovers – occur when some cost or benefit related to production or consumption “spills over”
onto people not involved in the production or consumption of the good

Market power – ability of a supplier to influence the market price of its product.

Inflation – occurs when the average price level rises.

Microeconomics – deals with individual activity within the economy.

Macroeconomics – deals with the economy as a whole.

Gross Domestic Product (GDP) – is the value of an economy’s total output of goods and
services produced within a particular year

Private – refers to individual people and businesses.

Public – refers to the government.