Ch 1: The Principles and Practices of Economics Flashcards
Economic Agent
An individual or a group that makes choices
Scarce Resources
Things that people want, where the quantity that people want exceeds the quantity that is available
Scarcity
Having unlimited wants in a world of limited resources
Economics
The study of how agents choose to allocate scarce resources and how those choices affect society
Positive Economics
Describing what has happened or predicting what will happen
Normative Economics
Advises individuals and society on their choices
About what people ought to do
Dependent on subjective judgments, feelings, tastes, or opinions.
Microeconomics
The study of how individuals, households, firms, and governments make choices, and how those choices affect prices, the allocation of resources, and the well-being of other agents.
Understand a small piece of the overall economy, like the market for coal-fired electricity generation.
Macroeconomics
The study of the economy as a whole.
Study economy-wide phenomena, like the growth rate of a country’s total economic output, the percentage increase in overall prices (the inflation rate), or the fraction of the labor force that is looking for work but cannot find a job (the unemployment rate).
Optimization
Picking the best feasible option.
Equilibrium
A situation in which no agent would benefit personally by changing his or her own behavior, given the choices of others.
Empiricism
Evidence-based analysis. In other words, analysis that uses data.
Trade-off
When some benefits must be given up in order to gain others.
Budget Constraint
The set of things that a person can choose to do (or buy) without breaking her budget.
Opportunity Cost
The best alternative activity
Cost-benefit analysis
A calculation that identifies the best option by summing benefits and subtracting costs, with both benefits and costs denominated in a common unit of measurement, like dollars.
Net benefit
The sum of the benefits of choosing an alternative minus the sum of the costs of choosing that alternative.
Benefits - cost
3 factors of production
Land
Labor
Capital
3 economic decisions
What to produce
How to produce it
For whom
Prescriptive economics
When economic analysis is used to help individual economic agents choose what is in their personal best interest, this is a type of normative economic
Sunk Costs
Costs that cannot be recovered and therefore aren’t relevant to a decision for a future activity
Free Rider
Receives benefit from a good without paying for the good
