Chapter 1 Flashcards
What is economics?
Economics is the study of the allocation of our scarce resources to satisfy our unlimited wants
The scarce resources used in the production of goods and services are
- Land
- Labour
-Capital
-Entrepreneurship (Enterprise)
Macroeconomics
Macroeconomics deals with the aggregate, or total, economy
Microeconomics
Microeconomics focuses on smaller units within the economy.
What are economic theories?
Statements or propositions about patterns of human (economic) behaviour that are expected to take place under certain circumstances
Empirical analysis
Examines data to see if the hypothesis fits well with the facts
Ceteris paribus
- Holding everything else constant
- It means isolating a variable to assess its effect
The fallacy of composition
The incorrect view that what is true for the individual is also true for the group
Positive analysis
an objective, value-free approach, utilizing the scientific method
Normative analysis
a subjective, biased approach
Scarcity
Our wants exceed our limited resources.It forces us to make choices
Goods
Physical, tangible items that we value or desire
Services
Intangible acts for which people are willing to pay(legal services, medical advice, cleaning etc.)
opportunity cost
The highest or best forgone opportunity resulting from a decision
Marginal cost
The change in total costs resulting from a one-unit change in output
The rule of rational choice
Individuals will pursue an activity if the expected marginal benefits are greater than the expected marginal costs.
Positive incentive
Incentives that either reduce costs or increase benefits, resulting in an increase in the activity or behaviour
Negative incentive
Incentives that either increase costs or reduce benefits, resulting in a decrease in the activity or behaviour
Specializing
Concentrating on the production of one, or a few, goods or services
Comparative advantage
When a person or a country can produce a good or service at a lower opportunity cost than others can
Three economic questions
- What is to be Produced?
- How are the goods and services to be produced?
- Who will get the goods and services?
