Ch 1-2 Vocab

Question 1

Economics

Answer 1

behavioral, or social, science that focuses on how people make choices and the effect of the choices made. On a larger scale, by compiling individual choices, these decisions become societal choices. It is chiefly the study of how individuals and societies choose to use the limited amount of resources that nature and previous generations provides.

Question 2

Opportunity Cost

Answer 2

when the best alternative is given up when we make a choice or a decision. a specific choice includes what we give up by not making the best alternative choice.
An example: ___ of the movie is the value of other things that you could have done with the same time and money.

Question 3

Marginalism (Marginal)

Answer 3

The process of analyzing the additional or incremental costs or benefits arising from a choice or decision. (ex. The ____ cost of an extra passenger on an airplane with empty seats is essentially zero).

Question 4

Sunk Costs

Answer 4

Costs that cannot be avoided because they have already been incurred.
In business, the statement that one has to “spend money to make money” is reflected in the phenomenon

Question 5

Efficient Markets

Answer 5

This is a market in which profit opportunities are eliminated almost instantaneously. (common way of expression of the concept is “there’s no such thing as a free lunch.”)- ex. The scramble for a hot tip in the stock market

Question 6

Microeconomics

Answer 6

The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units: firms and households. Such as the firms’ choices about what and how much to buy help explain why the economy produces the goods and services it does. looks at the individual unit. It sees and examines the “trees.”
(ex. How many people will be hired/fired this year in a particular industry)

Question 7

Macroeconomics

Answer 7

looks at the whole. It sees and analyzes the “forest.” The branch of economics that examines the economic behavior of aggregates—income, employment, output, etc.—on a national scale (examines the factors that determine the national output or product).
(ex. How many jobs exist in the economy as a whole)

Question 8

Positive Economics

Answer 8

An approach to economics that seeks to understand behavior and the operation of systems without making judgments whether the outcomes are good or bad. It describes what exists and how it works. A statement that makes no judgment, it is given as fact although may be false. (ex. Trump won the election.)

Question 9

Normative Economics

Answer 9

An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics. Made as belief, or self judgement.
(ex. Answering the question “Should we reduce or eliminate inheritance taxes?”)

Question 10

Ceteris paribus

Answer 10

Also known as “or all else equal’’. A device used to isolate the impact of one single factor, finding the relationship between two variables, while the values of other variables are held unchanged. (Only looking at the situation at hand. )
Using the device is one part of the process of abstraction. In formulating economic theory, the concept helps us simplify reality to focus on the relationships that interest us.

Question 11

Post Hoc Fallacy

Post hoc, ergo propter hoc

Answer 11

literally means, “after this (in time), therefore because of this.” It is a ____with the common error made in thinking about causation: If Event A happens before Event B, the A caused be. Although it is not necessarily true that A caused B.
(ex. I walked under a ladder and the stubbed my toe = ladders causes bad luck)

Question 12

Fallacy of Composition

Answer 12

The erroneous belief that what is true for a part is necessarily true for the whole. An example is, “your argument contained a strawman, so you’re wrong.”

Question 13

Efficiency

Answer 13

in economics means allocative _____. An _____economy is one that produces what people want at the least possible cost.If a system dispenses resources to the production of goods and services that nobody wants, it is in_____. (ex. If a society of vegetarians uses ½ of their resources to produce meat, it would be in____.)

Question 14

Equity

Answer 14

means fairness or impartial treatment to individuals/situations. Although this mainly lies in the eyes of the beholder (subjective).

(ex. To some it means more equal distribution of wealth, while to other it means giving people what they earned)

Question 15

Growth

Answer 15

the increase in the total output of an economy. It tends to be a result of technological change, building of machinery, and the acquisition of knowledge. Therefore, with these changes, new and better ways of producing goods and services as well as developing new goods/services would increase the total amount of production in the economy.
When output increases faster than the population, output per person rises and standards of living increases.
(Ex. rural and agrarian societies become modern industrial societies as a result of _______ and rising per capita output.)

Question 16

Stability

Answer 16

This refers to a condition in which national output is growing at a mostly constant/predictable rate, with low inflation and full employment of resources. (ex. During the 1950s-1960s, the US economy experienced a long period of relatively even growth, low unemployment, and regular prices.)

Question 17

Capital

Answer 17

Things that are produced and then used in the production of other goods and services (ex. Buildings, desks, charis, equipment, software, roads, bridges, and highways are part of the nation’s stock of ____)

Question 18

Factors of Production (factors)/ Production

Answer 18

are the basic resources available to a society. The 3 key ____ are land, labor, and capital. They are the inputs into the process of production (another term for resources). While ____ is a process that transforms scarce resources into useful goods and services.

Question 19

Comparative Advantage

Answer 19

Ricardo’s theory that specialization and free trade will benefit all trading parties, even those that may be “absolutely” more efficient producers.
A producer has ________ over another in the production of a good or service if he or she can produce that product at a lower opportunity cost. (divide and conquer) (ex. Colleen and Bill should divide and conquer even if Colleen has the absolute advantage)

Question 20

Absolute Advantage

Answer 20

A producer has _______ over another in the production of a good or service if he or she can produce that product using fewer resources. (ex. Colleen can gather more bushels of food than Bill, and also can cut more logs than Bill. Therefore Colleen has the_____)

Question 21

Consumer Goods

Answer 21

In a modern society, resources used to produce capital goods could have been used to produce _______. are produced for present consumption. (ex. Food, clothing, toys, etc.)

Question 22

Investment

Answer 22

This is the process of using resources to produce new capital (It can also often refer to the act of buying a share of stock or a bond though in economics, it always refers to the creation of capital: the purchase or putting in place of buildings, equipment, houses, roads, etc.)

Question 23

Production Possibility Frontier (PPF)

Answer 23

a graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently. (Illustrates the principles of constrained choice, opportunity cost, and scarcity.)

Question 24

Consumer Sovereignty

Answer 24

In a free and unregulated market, goods and services are produced and sold only if suppliers can make a profit. ____ is the idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to buy(and what not to buy).

(ex. As different models of cars fade out of style while others increase in demand, the desire for certain older models drops, therefore less are produced. )

Question 25

Command Economy

Answer 25

is an economy in which a central government either directly or indirectly sets output incomes, targets, and prices. For instance, in the Soviet Union, the central government answers the basic economic questions. Through a combination of government ownership of state enterprises and central planning, the government either directly or indirectly sets output targets, incomes, and prices.

Question 26

Market

Answer 26

The institution through which buyers and sellers interact and engage in exchange. Some are simple and others are complex, but they all involve buyers and sellers engaging in exchange. The behavior of buyers and sellers in a laissez-faire economy determines what gets produced, how it is produced, and who gets it.

Question 27

Laissez Faire Economy

Answer 27

In French it means: “allow [them] to do.” (opposite to command economy) is an economy in which individuals and firms can pursue their own self-interest without any central direction or regulation. With the sun of millions of individual decisions, it ultimately determines all basic economic outcomes.

Question 28

Free Enterprise

Answer 28

allows freedom for individuals to start /operate private businesses to gain wealth under a free market system (whether small/large producers). (ex. One person that is good with tech can start a business designing websites while a group of furniture designers may put together a large portfolio of sketches, raise money, and start a bitter business)